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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI S RIFAUR RAHMAN & SHRI PAVAN KUMAR GADALE
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 4091/Mum/2019 (A.Y: 2014-15) DCIT, CC-4(2) Vs M/s Rockfort Estate Room No. 1918, 19th Developers Pvt Ltd Floor, Air India Bldg, 1,Leela Baug, Andheri – Nariman Point, Kurla, Mumbai – 400021. Mumbai – 400051. PAN/GIR No. : AABCR7896K Appellant .. Respondent CO No. 72/Mum/2021 (Arising out of ITA No. 4091/Mum/2019 A.Y 2014-15) M/s Rockfort Estate Vs DCIT, CC-4(2) Developers Pvt Ltd Room No. 1918, 19th 1, Leela Baug,Andheri Floor, Air India Bldg, – Kurla, Nariman Point, Mumbai – 400051. Mumbai – 400021. PAN/GIR No. : AABCR7896K Appellant .. Respondent Assessee by : Mr.Rahul Hakani.AR Revenue by : Mr.S.N. Kabra.DR Date of Hearing 28.01.2022 Date of Pronouncement 25.04.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE, JM: The revenue has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-52,
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Mumbai, passed u/s 143(3) and 250 of the Act and the assessee has filed the cross objections.
At the time of hearing, the Ld.AR of the assessee submitted that there is a delay in filing the cross objections (C.O.) before the Hon’ble Tribunal and explained that due to Covid-19 pandemic, the filling was delayed and relied on the decision of Hon’ble Supreme Court in respect of extension of period of limitation. Contra, the Ld.DR has no specific objections. We found the facts mentioned are reasonable and accordingly condone the delay and admit the Cross objections.
The Revenue has raised the following grounds of appeal.
On the facts and in circumstances of the case and in law, the CIT(A) erred in directing the AO to assessee the rental income from property as Income from house property and allow all statutory deductions under the said head instead of business income. 2. On the facts and in circumstances of the case and in law, the CIT(A) erred in deleting the disallowance u/s 14A without considering the circular No. 5 of 2014 dated 11.02.2014 and decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co Ltd [328 ITR 81].
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On the facts and in circumstances of the case and in law, the CIT(A) erred in deleting the disallowance u/s 14A ignoring the fact that investments in group companies will also yield exempt income which will attract disallowance u/s 14 of the act as per Rule 8D of the IT Rules. 4. On the facts and in circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs. 3,65,36,722/- u/s 36(1)(iii) of the Act where assessee failed to prove that interest paid have been utilized wholly and exclusively for the business purpose. 5. On the facts and in circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs. 24,45,970/- being loss on sale of fixed assets debited by the assessee to its profit and loss account contradicting the provisions of section 37(1) of the Act.
The brief facts of the that the assessee company is engaged in the business of real-estate and has developed Leela Business Park at Andheri Kurla Road, Mumbai and the property was given on lease and the assessee receives lease/rental income and maintenance charges from various tenants. The assessee has filed the return of income electronically for the A.Y 2014-15 on 24.11.2014 with a total income of Rs.9,11,790/-. Subsequently, the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act along with questionnaire are issued. In compliance,
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the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The assessee derives the rental income from property, income from other sources and discloses in the computation of income unabsorbed loss from business and unabsorbed loss from house property. The assessee has under taken the activities in the business park and has offered rental income and claimed deduction u/s 23 and 24 of the Act. Whereas, the A.O has issued notice to treat rental income from property as income from business or profession. In reply, the assessee has filed the details on 22.08.2016 referred at para 4.3 of the A.O order as under:
4.3 The assessee vide letter dated 22.08.2016 furnished the following reply:- The assessee company developed single project known as "Leela Business Park" and given on the lease to the various parties. The rental income received from these parties is computed under the head "Income from House Property". The intention of the appellant is to earn rental income by letting out the property and condition stipulated to compute the rental income under the head "Income from House Property" u/s 22 of the income Tax Act was fulfilled. The assessee had no intention to exploit the property commercially and to earn the business income. They consistently followed the method of computing rental
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income earned from the project under the head "Income from House Property". The provision of section 22 of the IT Act states that "Rental Income" is taxable under the head "Income from House Property" if the following three conditions are satisfied a) The property should consist of any buildings or land appurtenant there to; b) The appellant should be the owner of the property; c) The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income tax. In the case of assessee all the above conditions have been satisfied and claimed only such deductions that are permissible under the Income Tax Act. The assessee's method of computing a rental income under the head "Income from House Property" has been accepted by Honorable CITA) in their own case in earlier years." 5. The A.O. was not satisfied with the explanations and dealt independently on the facts of disputed issue and relied on the judicial decisions and treated (i) the income derived from a commercial complex as income from business or profession.(ii) Further the A.O has invoked disallowance u/s 14A of the Act and issued notice. Whereas the assessee has filed the detailed submissions referred at para 5.1 of the A.O order. Finally the AO relied on the judicial decisions and worked out the disallowance u/s 14A r.w.r
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8D(2)(ii)&(iii) of the IT Rules of Rs. 8,23,70,362/-. (iii) Similarly the A.O. made proportionate disallowance of interest u/s 36(1)(iii) of the Act pertaining to related parties.(iv) addition of miscellaneous income due to mismatch as per AIR information (v) loss on sale of fixed assets and(vi) the long term capital loss is not allowed to be carried forward. Finally the A.O. has assessed the total income of Rs. 6,01,04,450/- and passed the order u/s 143(3) of the Act dated 26.10.2016.
Aggrieved by the assessment order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) considered the grounds of appeal, findings of the AO, submissions of the assessee and the decisions of the Hon’ble Tribunal in assessee’s own case pertaining to the treatment of rental income as the income from house property and granted the relief. The CIT(A) on the disallowance u/s 14A of the Act relied on the findings of the predecessor CIT(A) in the earlier year and deleted the disallowance. In respect of disallowance u/s 36(1)(iii) of the Act, the CIT(A) relied on the Honble Tribunal order in assessee’s own case
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for the A.Y 2013-14 and granted the relief. On the disputed issue, of loss on sale of fixed assets claim the CIT(A) dealt on facts and submissions and has not allowed the carry forward of long term capital loss and partly allowed the assessee appeal . Aggrieved by the CIT(A)order, the revenue has filed an appeal and cross objections by the assessee before the Hon’ble Tribunal.
At the time of hearing, the Ld. DR submitted that the Ld. CIT(A) erred in considering the decisions of the Hon’ble Tribunal, which are challenged by the revenue before the Higher Forums and supported the order of the Assessing officer.
8.Contra, the Ld. AR on the grounds of appeal raised by the revenue has supported the order of the CIT(A) and substantiated with paper book and the decisions of the Hon’ble Tribunal in the assessee’s own case for A.Y.2013-14 and earlier years.
We heard the rival submissions and perused the material available on record. The Crux of the disputed issues raised by the revenue in respect of five grounds
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of appeal are dealt independently. The Ld.DR submitted that the CIT(A) has erred in directing the A.O. to assess the rental income as income from house property and allow statutory deductions. We find that the CIT(A) relied on the facts and the assessee’s own case and dealt at page 4 para 5 to 5.4 of the order read as under:
In Ground Nos.1 to 6, the appellant has contested the action of the AO in assessing rental income of Rs. 28,39,69,703/- from its commercial premises, 'Leela Business Park' under the head, 'Income from Business or Profession', as against 'Income from House Property' shown by the assessee, and thereby not allowing the benefit of deduction u/s.24(a) of Rs. 8,91,35,556/-. In course of the scrutiny proceedings, the AO observed that though the assessee has been carrying out business activities prior to A.Y. 2003-04 to till date, however, it has shown income under the heads, 'Income from House Property' and 'Income from Other Sources' only. The AO further observed that the rental income received by the assessee on letting its commercial premises, teela Business Park' has been offered under the head 'Income from House Property'. However, it was noted by the AO that in the Tax Audit Report , the business of the assessee has been mentioned to be of Real Estate Business and the rental income received by it is from operation of commercial complex including various amenities. Therefore, the AO placed reliance on the decisions of the Hon'ble Supreme Court in the cases of Shri Laxmi Silk Mills Ltd. (20 ITR 451), Karnani Properties
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Ltd. (82 ITR 547), National Storage P. Ltd. and other decisions of the Hon'ble Courts to conclude that the said rental income of Rs. 28,39,69,703/- is to be taxed under the head, 'Income from Business or Profession' and not under the head, 'Income from House Property' as shown by the assessee and accordingly disallowed the claim of deduction u/s. 24(a) of Rs. 8,91,35,556/-.
5.1 In course of the appellate proceedings, the assessee submitted that its intention has always been to earn rental income by letting out the property and was never to exploit the property commercially for earning business income. It was further submitted that it has consistently been offering the rental income earned under the head, 'Income from House Property'. Moreover the assessee submitted that this issue has been decided in its favour by First Appellate Authority (FAA ) for A.Ys. 2004-05 to 2013-14 and by the Hon'ble ITAT for A.Ys. 2004-05 to 2010-11. Accordingly, the assessee contended that the action of the AO of taxing its rental income under the head, 'Income from Business or Profession' as against under the head, 'Income from House Property' shown by it, is not correct.
5.2 The contentions of the assessee have been duly considered. It is noted that my Id. Predecessor for A.Y. 2013-14 has decided this issue in favour of the assessee by relying upon the decisions of his Id. Predecessors in the case of the assessee itself for A.Ys. 2007-08 to 2010- 11. The relevant portion of the order of my Id. Predecessor for A.Y. 2013-14 on this issue is reproduced as under :-
I have considered the facts of the case, submissions and contentions of the appellant and order of the AO. It is seen that identical issue came up for consideration before
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my Id. Predecessor, in appellant's own case for A. Y. 2010- 11. Observing that in A. Y. 2007-08 to 2009-10, the then CIT(Appeals) had held the rental income is to be assessed as income from house property and that the AO had not brought on record any distinguishable fact regarding the nature of rental income as compared to the earlier years, my Id. Predecessor vide order dated 13/3/2013 held that for A. Y. 2010-11 also, the rental income from property was assessable under the head income from house property' and all statutory deductions under the head should be allowed thereon. Therefore, respectfully following the orders of my learned predecessors for A. Ys. 2007-08 to 2010-11, I direct the AO to assess the rental income from property as 'income from house property' and allow all statutory deductions under the head 'house property' as per law, in this year also. These grounds of appeal are accordingly, allowed.
5.3 It is further observed that the Hon'ble ITAT in the case of the assessee itself for A.Ys. 2004-05 to 2010-11 has adjudicated this issue in favour of the assessee vide a common order vide ITA No. 7453 to 7456/Mum/2012 dated 06.04.2016. The relevant portion of the decision of the Honlble ITAT on this issue is reproduced as under :-
We have also considered the judgement passed by the Hon'ble Bombay High Court in the case of Sane and Doshi Enterprises (377 /TR 165), wherein it was held that income from house property- business income-income from property or business income-assessee engaged in construction of property — - unsold property let out — rent assessable as income from house property. Even as per the aforementioned decision rental income was treated as 'income from house property'. Learned CIT(A) has judicially passed his order after considering facts and
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circumstances of the case and there is no need to interfere his order from our side. Hence, we uphold his order and reject ground raised by the Revenue.
5.4 Since, the facts of the issue for the relevant year are similar, I find no reason to deviate from the aforesaid decisions of the Hon'ble ITAT as well as my Id. Predecessors in the case of the assessee itself. The AO is directed to assess the rental income of the assessee under head, 'Income from House Property' and allow all the statutory deductions as per Law. Accordingly, Ground Nos. 1 to 6 of the appeal are allowed.
Whereas the Hon’ble Tribunal in assessee’s own case for A.Y 2013-14 in ITA No.4857/Mum/2017 dated 26.04.2019 has observed at page 2 para 2 read as under:
Ground No.1 raised by the revenue relates to action of the ld. CIT(A) with regard to treatment of rental income derived by the assessee. 2.1. Both the parties mutually agreed that this issue is covered in favour of the assessee from A.Yrs. 2004-05 to 2012-13 by the order of this Tribunal. We find that this Tribunal in assessee’s own case in ITA No.3398/Mum/2017 for A.Y.2012-13 dated 30/01/2019 had decided the issue in favour of assessee by placing reliance on the earlier orders of this Tribunal in assessee’s own case. The findings given by this tribunal in the said order on the impugned issue is not reiterated for the sake of brevity. We find that the ld. CIT(A) had also placed reliance on the said Tribunal’s decisions and had granted relief to the assessee, which in our considered opinion, does not call for any interference.
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Accordingly, ground No.1 raised by the revenue is dismissed.
Similarly the Hon’ble Tribunal in assessee’s own case for the A.Y 2012-13 in ITA No. 3398/Mum/2017 dated 30.01.2019 has dealt on the issue at para 3 to 5 as under:
Under this issue, the revenue has challenged the treatment of rental income as income from house property instead of income from business or profession. The assessee received the rental income of Rs.28,56,95,449/- and claimed the deduction u/s.24 of the Act. However, the Assessing Officer treated the said rental income as income from business or profession. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record. The relevant finding has been given in the para 7 of the CIT(A) which is reproduced below:-
“7. I have considered the facts of the case, submissions and contentions of the appellant and order of the AO. It is seen that identical issue came up for consideration before my learned predecessor, in appellant’s own for A.Y.2010- 11. Observing that in A.Y.2007-08 to 2009-10, the CIT(Appeals) had held therental income to be assessable as income from house property and that the AO had not brought on record any distinguishable fact regarding the nature of rental income as compared to the earlier years, my learned predecessor held vide order dated 13.3.2013 that for A.Y.2010-11 also, the rental income from property was assessable under the head income from house property and all statutory deductions under the head should be allowed thereon. Respectfully following the
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orders of my learned predecessors for A.Y.s 2007-08 to 2010-11, I direct the AO to assess the rental income from property as income from house property and allow all statutory deductions under the head, as per law, in this year also. These grounds of appeal are, accordingly, allowed.”
On appraisal of the above mentioned order, we noticed that the CIT(A) has allowed the claim of the assessee in connection with the treatment of rental income as income from house property instead of income from business and profession on the basis of the decision of the CIT(A) in the assessee’s own case for A.Y.2007-08 for A.Y.2007-08 to 2010-11 and accordingly treated the rental income as income from house property. We also noticed that the issue in question has also came before the Hon’ble ITAT in ITA No.7453/Mum/2012 and others for A.Y.2004-05 to 2010- 11 dated 06.04.2016 in which Hon’ble ITAT has also decided the issue in favour of the assessee and treated the income as income from house property. The relevant finding has been given in the para 9,10,& 11 which is reproduced as below:-
“9. We have heard the submission made by the parties and carefully gone through the record as well as order passed by learned CIT(A). We find hat learned CIT(A) has considered the submissions of both the parties and passed the order on this ground. Operative para of the order of learned CIT(A) is as under:-
3.3. I have carefully gone through the observations of A.O. and submissions of the appellant. The appellant has correctly stated that the method of computing the Rental Income under the head Income from House Property was accepted by Assessing Officer’s predecessors in all earlier
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assessments orders passed u/s.143(3) of the Income Tax Act right from A.Y.2004-05 to 2006-07 copies of those orders were placed on record. There is no change in the position compared o those years and current assessment year. Further, the appellant followed the same method in the subsequent years also. Therefore, there is merit in appellant’s contention that the A.O. cannot change his stand according to his convenience unless there is change in facts. The authorized representative has also given the reason why the building under construction was shown under Inventory. Even in that case also, there is no change in the facts in comparison to earlier years.
3.4 As rightly pointed out by the A.R. decision of Hon’ble Supreme Court in the case of Shambhu Investments Pvt. Ltd. is clearly in the favour of appellant and said Apex Court decision supersedes the decisions quoted by the A.O.
3.5 In view of the above, the method consistently followed by the appellant in computing the rental income under the head “Income from House Property” should be up held as valid method and accordingly the Assessing Officer is directed to compute the rental income under the head ‘income from house property’ and allow statutory deduction of Rs.2,20,69,233/- claimed by the appellant. Therefore, the first ground of appeal is allowed in favour of the appellant.
As per the order of learned CIT(A) it is clear that learned CIT(A) has found that there is no change in the position compared to those assessment years i.e. A.Y.2004-05 to 2006-07, wherein rental income of the assessee under the head income from house property’ was accepted by the Assessing Officer’s predecessors in all earlier assessment orders passed u/s.143(3) of the Act.
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Further it was also appreciated by learned CIT(A) that the assessee followed same method in the subsequent year also. Learned AR before learned CIT(A) has given the reason why the building under construction was shown under inventory and even in that case also, learned CIT(A) has not found any change in the facts in comparison to earlier years. Learned CIT(A) has rightly applied the principles laid down by Hon’ble Supreme Court in the case of Shambhu Investments Pvt. Ltd. (supra).
We have also considered the Judgment passed by Hon’ble Bombay High Court in the case of Sane and Doshi Enterprises (377 ITR 165), wherein it was held that income from house property – business income – income from property or business income – assessee engaged in construction of property – unsold property let out – rent assessable as income from house property. Even as per the aforementioned decision rental income was treated as ‘income from house property’. Learned CIT(A) has judicially passed his order after considering facts and circumstances of the case and there is no need to interfere his order from our side. Hence we uphold his order and reject ground raised by the Revenue.”
The CIT(A) has followed order passed by Hon’ble ITAT in assessee’s own case in I.T.A. No.5209/Mum/2014 dated 28.09.2016. The facts are not distinguishable at this appellate stage. No law contrary to the law relied by the learned representative of the assessee has been produced by the learned representative of the department. Taking into account of all the facts and circumstances and by honouring the order passed by the Hon’ble ITAT in the assessee’s own case (supra), we are of the view that the CIT(A) has decided the matter of controversy judicially and correctly which is not liable to be interfere with at this
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appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. 12. On the next disputed issue, with respect to disallowance u/s 14A of the act. The contentions of the Ld. DR that the Ld. CIT(A) has erred in deleting the disallowance u/s 14A of the Act without considering the circular of CBDT. We find in the present assessment year, the assessee has not received any tax free income and therefore no claim of expenses are made in the computation of income. We find that the CIT(A) has considered these facts and relied on the assessee’s case for the A.Y 2012-13 of his predecessor CIT(A) and dealt at page 6 para 6 to 6.3 as under
In Ground No.7, the appellant has disputed the disallowance of Rs. 8,23,70,362/- u/s. 14A r.w.Rule 8D. The AO observed that the investments in shares made by the assessee have gone up to Rs. 105.1 crs. as against Rs. 40.1 crs. in the preceding year. It was noted by the AO that the assessee is maintaining a common pool of funds and common accounts in respect of all the activities and the interest expenditure claimed by it is to the tune of Rs. 24.44 crs. The AO, therefore, asked the assessee to show-cause and explain as to why appropriate disallowance should not be made u/s. 14A. In response, the assessee submitted that it has not earned any exempt income during the relevant year and therefore, as per the ratio of the decisions of the Hon'ble Delhi High Court in the cases of Cheminvest Ltd.
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(378 ITR 33) and Holcim India P. Ltd. ( 272 CTR 282) , no disallowance u/s. 14A can be made. Further, as regards the disallowance out of interest u/s. 14A, the assessee submitted that out of the total interest of Rs. 24.44 crs. debited in the P&L A/c., an amount of Rs. 14.95 crs. has been claimed u/s. 24 and the balance interest of Rs. 9.49 crs. has not at all been claimed as a deduction. Accordingly, the assessee contended that since no amount has been claimed as a deduction on account of interest other than the interest of Rs. 14.95 crs. u/s. 24 while computing the income under the head, 'Income from House Property', no disallowance out of interest expenditure can be made u/s. 14A. The AO, however, did not accept the contentions of the assessee and proceeded to compute the disallowance u/s. 14A after applying Rule 8D at Rs. 8,23,70,362/- which comprised of disallowance u/r. 8D(2)(ii) of Rs. 7,87,40,362/- and u/r. 8D(2)(iii) of Rs. 36,30,000/-.
6.1 In the appellate proceedings, the assessee made submissions which were similar to the ones made before the AO in the assessment proceedings. The assessee strongly argued that since, out of the total interest expenditure of Rs. 24.44 crs., an amount of Rs. 14.95 crs. has been claimed u/s. 24(b) while computing income under the head, 'Income from House Property' and the balance amount of Rs. 9.49 crs. has not at all been claimed as a deduction, therefore, the action of the AO of making a disallowance out of interest expenditure u/s. 14A r.w.r. 8D(2)(ii) of Rs. 7,87,40,362/- is grossly incorrect.
6.2 The contentions of the assessee have been duly considered. It is noted that my Id. Predecessor for A.Y. 2013- 14 has decided this issue in favour of the assessee. The relevant portion of the order of my Id. Predecessor for A.Y. 2013-14 on this issue is reproduced as under :-
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Therefore, considering the overall facts of the case, even though, applicability of provisions of section 14A is upheld in principle, however, no disallowance could be made u/s. 14A as the assessee has not claimed any such expenditure, in the computation of income, as discussed above. Therefore, the disallowance made by the AO u/s. 14A is directed to be deleted. Consequently, this ground of appeal of the assessee is al/owed.
6.3 Since, the facts of the issue for the relevant year are similar, I find no reason to deviate from the aforesaid decision of my Id. Predecessor in the case of the assessee itself for A.Y. 2013-14, especially since the assessee has not claimed any expenditure in the computation of income which can be considered for disallowance u/s. 14A. Accordingly, Ground No. 7 of the appeal is allowed.
We find the Hon’ble Tribunal in assessee’s own case for the A.Y 2013-14 has dealt on the issue at page 2 para 3 to 3.3 as under:
The ground Nos. 2 & 3 raised by the revenue is with regard to disallowance u/s.14A of the Act. 3.1. We have heard rival submissions. We find that the undisputed fact in the instant case is that assessee had not derived any exempt income at all and hence, there cannot be any disallowance u/s.14A of the Act. Reliance in this regard is placed on the recent decision of the Hon’ble Supreme Court in the case of Essar Teleholdings Ltd., reported in 401 ITR 445. 3.2. Respectfully following the same, we find no infirmity in the order of ld. CIT(A) and accordingly ground Nos.2 & 3 raised by the revenue are dismissed.
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The Hon’ble Tribunal in assessee’s own case for the A.Y 2012-13 in ITA No. 3398/Mum/2017 dated 30.01.2019 has dealt on the issue at page 5 para 6 to 7 as under:
Under this issue the revenue has challenged the deletion of the addition raised in view of the provision u/s.14A r.w.Rule 8D of the Act. Learned representative of the department has contended that the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is not justifiable and the order of the Assessing Officer is liable to be restored in connection with the assessing the expenditure incurred to earn the exempt income. However, on the other hand the learned representative of the assessee has strongly relied upon the order passed by the CIT(A) and it is specifically argued that the assessee has no exempt income, therefore, the provision u/s.14A read with Rule 8D is not applicable to the facts of the present case.
On appraisal of the order passed by the Assessing Officer as well as CIT(A) and relevant record, we noticed that the assessee nowhere earned any exempt income. Moreover, the assessee nowhere claimed any expense while computing the income. At the time of argument, the learned representative of the assessee has placed reliance on the decision of Hon’ble ITAT ‘A’ Bench in case tilted as Kamat Hotels (India) Ltd. Vs. Deputy Commissioner of Income Tax (OSD) 8(2) [2018] 89 taxmann.com 225 Mumbai Tribunal. It is specifically held that the assessee has no exempt income, therefore, no provision u/s.14A read with Rule 8D would be applicable. While passing the above
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mention order, the Hon’ble ITAT Mumbai Bench relied upon the decision of Special Bench in case titled as CIT Vs. Vireet Investment (P.) Ltd. [2017] 165 ITD 27/82 taxmann.com 415. Where there is no exempt income then no expenditure to earn the exempt income is liable to be assessed in view of provisions of u/s 14A r.w. Rule 8D of the Act. Taking into account of all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judicially and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee.
On the Third disputed issue, with respect to the disallowance u/s 36(1)(iii) of the Act. The Ld. DR contended that the CIT(A) has erred in deleting the disallowance u/s 36(1)(iii) of the Act. Where the assessee has failed to prove that the interest paid on barrowings has been utilized wholly and exclusively for the purpose of business. Whereas, the submissions of the Ld.AR are that the assessee has utilized the funds for the business purpose and commercial expediency. The CIT(A) has granted the relief and observed at page 7 para 7 as under:
In Ground No.8, the assessee has disputed the disallowance out of interest expenditure u/s. 36(1)(iii) of the IT Act of Rs.3,65,36,722/-. In course of the assessment proceedings, the AO observed that the assessee has given
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substantial advances to related parties etc. on which no interest has been charged. The AO therefore, asked the assessee to show-cause and explain as to why appropriate disallowance should not be made u/s. 36(1)(iii) out of interest expenditure. In response, the assessee submitted that it has not claimed any interest expenditure as a deduction other than the interest expenditure of Rs. 14.95 crs. u/s. 24 while computing ts income under the head, 'Income from House Property' However, the AO did not accept the contentions of the assessee and computed the proportionate interest expenditure to be of Rs. 3,65,36,722/- as related to the interest-free advances etc. given by the assessee and added the same to the total income of the assessee.
7.1 The contentions of the assessee have been duly considered. It is noted that my Id. Predecessor for A.Y. 2013-14 has decided this issue in favour of the assessee. The relevant portion of the order of my Id. Predecessor for A.Y. 2013-14 on this issue is reproduced as under :-
"28. I have gone through the assessment order, perused the submissions and also discussed the case with the ARs of the appellant. It is relevant to mention over here that income of the assessee from letting out commercial complexes is held to be assessable under the head 'House Property', as decided in Ground No. 1 in the foregoing paras. Therefore, the same is not liable to be taxed under the head 'Business'. Consequently, the provisions of sec. 36(1)(iii) are not applicable. It is further relevant to mention over here that out of the total interest of Rs. 20,77,80,058/-, the assessee has claimed interest only of Rs. 14,46,36,399/- under the head 'House Property' u/s. 24 of the act and remaining interest has not been claimed in the computation of income and therefore, as such, no interest expenditure has been
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claimed by the assessee under the head 'Business'. If that be the case, the entire exercise at the end of the AO becomes infructuous. The AO has worked out the above disallowance only because he has changed the head of income from 'House Property' to 'Business'. Since, that issue has already been decided while adjudicating Ground No. 1, this issue become only of academic interest. As no interest has been claimed by the assessee under the head 'Business', no disallowance could be made by the assessee u/s. 36(1)(iii). This ground is decided accordingly".
7.2 Since, the facts of the issue for the relevant year are similar, I find no reason to deviate from the aforesaid decision of my Id. Predecessor in the case of the assessee itself for A.Y. 2013-14, especially since the assessee has not claimed any income under the head "Profits and Gains of Business or Profession" to invoke provisions of sec. 36(1)(iii). Accordingly, Ground No. 8 of the appeal is allowed.
We find that the Hon’ble Tribunal in assessee’s own case for the A.Y 2013-14 has observed at para 5 as under:
We find that ground Nos.5 & 6 are linked with ground No.1 raised by the revenue before us. We find that the ld. CIT(A) had held that the rental income is to be taxed under ‘income from house property’ and not ‘income from business’ and hence, the provisions of Section 36(1)(iii) of the Act towards disallowance of interest does not arise as the same was disallowed by the ld. AO only due to the fact of changing the head of ‘income from house property’ to ‘business’. Hence, the ld. CIT(A) held that this issue is only of academic interest and no disallowance could be made u/s.36(1)(iii) of the Act.
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5.1. Similarly, the ld. CIT(A) deleted the disallowance of Rs.11,60,104/- made in respect of interest on sales tax on the very same reasoning as above. 5.2. We have already held that rental income is to be taxed only under the head ‘income from house property’ in the facts and circumstances of the assessee’s case and hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief in respect of these two issues to the assessee. Accordingly, ground No.5 & 6 raised by the revenue before us are dismissed.
The last disputed issue, the Ld. DR submitted that the CIT(A) has erred in deleting the disallowance of loss on sale of fixed assets debited to profit and loss account contradicting the provisions of sec 37(1) of the Act. The contentions raised by the assessee that the assessee has sold certain fixed assets and loss in not claimed. We find that the CIT(A) has granted the relief and observed at para 8.1 to 8.2 of the as under:
8 In Ground No. 9, the assessee has disputed the action of the AO in disallowing the loss on sale of fixed assets of Rs. 24,45,970/- which was debited to the P&L A/c. Moreover, in Ground No. 10 the assessee has disputed the action of the AO in making a disallowance of its claim of Long Term Capital Loss of (-) Rs. 1,14,85,723/- on sale of fixed assets claimed in the computation of income. Since, both these grounds are related to the same sale of fixed assets, the same are being adjudicated together for the sake of convenience. It is observed that the assessee in its P&L A/c. had debited an amount of Rs. 24,45,970/- on account
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of loss of sale of fixed assets. In respect of this same transaction, in the computation of income, the assessee had claimed Long Term Capital Loss of (-) Rs. 1,14,85,723/- after indexation. The AO had disallowed the loss of Rs. (-) 24,45,970/- which was debited to the P&L A/c., on the ground that the rental income of the assessee is to be taxed under the head, 'Income from Business or Profession' and therefore, such capital loss cannot be allowed as a deduction u/s. 37(1). As regards, the Long Term Capital Loss of (-) Rs, 1,14,85,723/- claimed in the Computation of Income after indexation on the sale of the same assets, the AD disallowed the same on the ground that the said assets are depreciable as the corresponding said rental income is taxable under the head, 'Income from Business or Profession'.
8.1 In the appellate proceedings, the assessee submitted that during the relevant year, it had sold furniture, fit-outs etc. for a consideration of Rs. 48,61,885/- and the resultant loss arising from this transaction of Rs. 24,45,970/- was debited to the P&L A/c. However, this loss has not at all been claimed in the computation of income, since the corresponding said rental income has been offered for taxation under the head, 'Income from House Property'. Therefore, the assessee contended that the question of any disallowance of this loss, does not arise. As regards, the claim of Long Term Capital Loss of (-) Rs. 1,14,85,723/- claimed in the computation of income in respect of the sale of same furniture, fit-outs etc., the assessee submitted that their original costs were of Rs. 1,01,32,383/-. Since, on these furniture, fit-outs etc., no depreciation was claimed, it was entitled to claim indexation on their original cost. It was submitted that the Long Term Capital Loss arising in respect of sale of the said furniture, fit-outs etc, after indexation was of (-) Rs.
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1,14,85,723/-. Accordingly, the assessee contended that it had correctly computed the said Long Term Capital Loss and therefore, the action of the AO of not allowing carry forward of this loss claimed in the computation of income, is not correct. 8.2 The contentions of the assessee have been duly considered. As regards the disallowance of loss of (-) Rs 24,45,970/- debited to the P & L account on sale of furniture, fit outs, etc., the assessee's claim of taxing the rental receipts from its commercial premises "Leela Business Park" under the head "Income from House Property" has been allowed while adjudicating Ground Nos 1 to 6. It is a fact that this loss of (-) Rs 24,45,970/- has not at all been claimed in the Computation of Income by the assessee and therefore, the question of its disallowance does not arise. Accordingly, ground No 9 of the appeal is allowed.
The Ld. AR has substantiated with the factual paper book, judicial decisions and assessee own cases of Honble Tribunal. The CIT(A) has considered the facts, provisions of law and judicial decisions and passed a reasoned and speaking order. Further the submissions of the Ld.DR on the five grounds of appeal raised by the revenue are concerned, the Ld. DR relied on the order of the assessing officer and could not controvert the observations of the CIT(A) with new tangible material information or evidence to take a different view. Accordingly we do not find any infirmity
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in the order of the CIT(A) and up hold the same and dismiss the grounds of appeal raised by the revenue.
In the result, the appeal filed by the revenue is dismissed.
CO No. 72/Mum/2019
The assessee has raised the following cross objections as under:
The learned CIT(A) erred in upholding order of learned Assessing officer in not allowing carry forward of Long Term Capital Loss of Rs. 1,14,85,723/- on sale of furniture, fit outs etc without appreciating that Section 22 to Section 24 of the Income tax Act, 1961 has no application in deciding carry forward of such loss and hence the loss of Rs. Rs. 1,14,85,723/- may be allowed to be carried forward.
The learned CIT(A) erred in taxing Rs.48,61,885/- received on sale of furniture, fit out etc under the head "Income from other sources" as scrap sale without appreciating that sale of furniture fit out etc cannot be equated with scrape sale and further said receipt is arising under the head "Capital Gain" and cannot be taxed as income from other sources.
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3 Without prejudice to ground no. 2, learned CIT(A) erred in not reducing cost of acquisition of furniture, fit out etc while computing income of Rs. 48,61,885/- on sale of such furniture, fit out etc under the head "Income from other sources". 4. The respondent craves leave to add, amend alter or vary the grounds of appeal at the time of or before the date of the hearing.
The contentions of the Ld. AR that the CIT(A) has erred in upholding the action of the A.O. in not allowing the carry forward of the long term capital loss on sale of furniture and CIT(A) has also erred in taxing the amount received on sale of furniture under the income from other sources as sale of scrap. The Ld.DR supported the order of the CIT(A) on this disputed issue. We find at para 8.3 & 8.4 of the order, the CIT(A) has dealt as under:
8.3 As regards the disallowance of assessee's claim of Long Term Capital Loss of (-) Rs 1,14,85,723/- after indexation related to the same sale of furniture, fit outs, etc., as noted earlier, the assessee has been offering rental income from letting out of its commercial premises, 'Leela Business Park' under the head, 'Income from House Property'. The assessee has let out this property inclusive of the furniture, fit-outs, etc. It is the responsibility of the assessee to carry out necessary
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repairs, replacements etc. from time to time on the premises as well as the furniture, fit-outs, etc. provided b into the tenants/occupants. It is only for this purpose that the Act provides for deduction u/s. 24(a) of 30% of the Annual Value of the property for repairs etc. Therefore, the assessee cannot again be allowed a deduction of the cost of the furniture, fit-outs etc., at the time of its sale, leave alone a deduction of their indexed cost.
8.4 Since, not allowing the indexed cost of the furniture, fit-outs, etc would lead to enhancement, the assessee vide order sheet noting dated 18.03.2019 was made aware of the same. In response, the assessee reiterated its contentions made earlier. Moreover, the assessee contended that it is at least eligible to claim deduction of the bare cost of furniture, fit outs, etc., if not their indexed cost. The sale of furniture, fit- outs, etc. can be equated to sale of scrap which is incidental to the main business activity. As noted earlier, the assessee has let out this property inclusive of the furniture, fit-outs, etc. and it is the responsibility of the assessee to carry out necessary repairs, replacements etc. from time to time on the premises as well as the furniture, fit-outs, etc. provided by it to the tenants/occupants.
It is only for this purpose that the Act provides for deduction u/s. 24(a) of 30% of the Annual Value of the property for repairs etc. Therefore, the assessee cannot again be allowed a deduction of the cost of the furniture, fit-outs etc., at the time of its sale, leave alone a
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deduction of their indexed cost. Accordingly, the assessee's claim of deduction of the indexed cost of furniture, fit-outs, etc. of Rs. 1,63,47,608/- cannot be allowed against the consideration from sale of furniture, fit-outs, etc of Rs. 48,61,885/. However, the sale consideration of Rs. 48,61,885/- which is akin to sale of scrap, is required to be taxed separately under the head, 'Income from Other Sources'.
We heard the rival submissions and perused the material on record. Prima-facie the contentions of the Ld. AR in the cross objections are with respect to allow ability of carry forward of long term capital loss and the sale proceeds of furniture cannot be taxed under income from other sources. On perusal of the facts and the order of the A.O order, we find that the assessee was asked to file the information to substantiate with material evidences in respect of the above claims but there is no proper observations in the A.O. order. Accordingly, to meet the ends of justice we shall provide one more opportunity to the assessee to substantiate with the material evidences on the disputed issues before the Assessing officer. Accordingly, we remit the issues to the file of Assessing officer for limited purpose to examine the facts and
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decide on merits and allow the cross objections filed by the assessee for statistical purpose.
In the result, the appeal filed by the revenue is dismissed and the Cross objections filed by the assessee are allowed for statistical purposes.
Order pronounced in the open court on 25.04.2022
Sd/- Sd/- (S RIFAUR RAHMAN) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 25.04.2022
KRK, PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A) 3. Concerned CIT 4. DR, ITAT, Mumbai 5. Guard file. 6. आदेशानुसार/ BY ORDER, //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai