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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R
PER MAHAVIR SINGH, VP: These two cross appeals, one by the assessee and one by the Revenue and cross objection filed by the assessee are arising out of the order of Commissioner of Income Tax (Appeals)-15, Chennai in vide order dated 0.11.2016. The assessment was framed by the ACIT (OSD), Corporate Circle 6, Chennai for the assessment year 2012-13 vide order dated 27.03.2015 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’).
This is the second round of litigation before Tribunal and matter has been remanded back by Hon’ble High Court of Madras in Revenue’s appeal as well as assessee’s appeal. The Hon’ble High Court in Tax Case Appeal Nos.767 to 769 of 2019 vide order dated 09.10.2020 has set aside the order of the Tribunal and directed to decide the issues afresh by observing in Para 8 & 9 as under:-
3 & 697/Chny/2017 & C.O. No.36/Chny/2017 8. Though they were not raised in the same form before the Tribunal, we find that there was an argument to that effect, which has not been dealt with by the Tribunal. Therefore, we are inclined to interfere with the impugned order and remand the matters to the Tribunal for a fresh consideration. That apart, the Revenue was also aggrieved by one portion of the order passed by the Tribunal, which, according to the Revenue, was factually and legally incorrect and therefore, they moved a miscellaneous petition before the Tribunal and it was allowed by order dated 08.10.2018. The Tribunal is to hear the Revenue afresh on that issue. Hence, interest of justice would be met and interest of the Revenue also would be protected if the entire matter is remanded to the Tribunal for a fresh consideration.
For the above reasons, the above tax case appeals are allowed, the common impugned order is set aside and the matter is remanded to the Tribunal to be heard and decided afresh. It is open to both parties to raise all the issues, both factual as well as legal. Consequently, the substantial questions of law are left open. No costs. Consequently, the connected CMPs are closed.
The Hon’ble High Court in Tax Case Appeal Nos.537 & 538 of 2018 vide order dated 09.10.2020, directed as under:- 6. So far as the first substantial question of law framed for consideration, it relates to the rental receipts of the assessee with regard to letting out of the property and whether it needs to be treated as business income. This issue also need not be answered in the light of the fact that we have allowed the assessee’s appeal in TCA Nos.767 to 769 of 2019 by a common judgment dated 09.10.2020 ie.. today, set aside the common order of the Tribunal and remanded the matter to the substantial question of law framed is left open and both the assessee as well as the Revenue can raise all the issues before the Tribunal.
At the outset, the ld.counsel for the assessee stated that the CO No.36/Chny/2017 arising out of Revenue’s appeal ITA No.697/Chny/2017. Hence, it is 4 & 697/Chny/2017 & C.O. No.36/Chny/2017 duplicity of proceedings. For this purpose, he wants to withdraw the cross objection. We permit the withdrawal and dismiss the same as withdrawn.
We noticed that the appeal filed by the assessee in is time barred by 72 days and assessee has filed condonation petition stating the following reason:- The delay in filing the appeal is neither wilful nor deliberate but due to circumstances beyond the control of the Appellant / Petitioner and the impugned order was handed over to Mr. M. Chidambaram, Chartered Accountant for filing the second appeal immediately while however, due to ill health of the Chartered Accountant in the month January and February 2017, the appeal was filed belatedly before the Hon’ble Bench on 22.03.2017. The said delay is not attributable to the Petitioner / Appellant and hence the reliance is placed on the decision of the Supreme Court in the case reported in 167 ITR 471. The issue raised in the Petitioner / Appellant’s appeal is basically non adjudication of the claim for depreciation which is the automatic consequence to the treatment of the income earned from. operations of shopping mall M/s Coromandal Plaza as business inc‹›ii e thereby making eligible for related depreciation.
From the above, we find the cause as reasonable and hence, we condone the delay and admit the appeal.
ITA 462/Chny/2017 5. The only issue raised in Revenue’s appeal is as regards to the order of CIT(A) directing the AO to verify the Memorandum of Association and main objects of the assessee company and 5 & 697/Chny/2017 & C.O. No.36/Chny/2017 accordingly assess the income from construction and sale of residential apartments of Victoria Towers under the head ‘business income’. For this, Revenue has raised the following Ground Nos.2.1 to 2.6:-
2.1 The learned CIT(A) erred in directing the AO to verify the Memorandum of Association and main objects of the appellant company and assess the income from construction and sale of Victoria Towers under the head business’ when the learned CIT(A) ought to have directed the AO to verify the same under Rule 46A of the Income-tax Rules. 2.2 The ld. CIT(A) ought to have directed to AO either to consider the income as income from house property or income from business but should have directed to verify the same and allow the same as business income ’. 2.3 The ld. CIT(A), under the powers of Rule 46A of the Income-tax Rules, ought to have given the assessing officer a reasonable opportunity to examine the issue before directing the AO to verify and simultaneously allowing it as 'business income’. 2.4 The ld. CIT(A) failed to note that he has no powers to set aside the issue and simultaneously allow the income as ’business income'. 2.5 The ld. CIT(A) failed to note that the AO has substantiated his contention stating that the assessee need not complete the construction of the house or occupy the same and it would be enough if he establishes that he had invested the entire net consideration within the stipulated period. 2.6 The Ld CIT(A) erred in not following the binding decision of the Jurisdictional High Court in the case of Keyaram Hotels (P) Ltd., Vs ACIT 373 ITR 494 (Madras). SLP dismissed by Supreme Court vide 235 Taxmann 512 (SC) against HC’s ruling that where assessee was not engaged in any business activity, rental income earned from letting out commercial complex would be assessed as income from house property and not as business income.
6 & 697/Chny/2017 & C.O. No.36/Chny/2017 6. Intervened during the course of hearing, ld.counsel for the assessee Shri S. Sridhar stated that as per grounds raised by the Revenue, only the issue is sale of residential apartments of Victoria Towers whether ‘business income’ or ‘income from house property’. He stated that the relief granted by the CIT(A) with respect to assessment of notional ALV of shopping mall at the Coromandal Plaza owned and operated by the assessee holding the income under the head ‘business income’ as declared by the assessee as against assessed by the AO as ‘income from house property’ is not challenged and the same has attained finality in the absence of any specific ground raised by Revenue in their appeal. On query from the Bench, the ld.Senior DR went through the grounds raised by Revenue and fairly agreed that the ground qua the assessment of income of Coromandal Plaza adjudicated by CIT(A) has not been raised.
As regards to the assessment of income in respect of Victoria Towers, i.e., notional ALV of residential apartments, the CIT(A) in view of the decision of Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd., [2015] 373 ITR 673 decided the issue and directed the AO to verify the activity of the company in consonance with its main objects and also verify the 7 & 697/Chny/2017 & C.O. No.36/Chny/2017 Memorandum of Association. The CIT(A) directed the AO vide para 4.3 as under:- “4.3 The matter is considered. The Hon’ble Supreme Court in its decision of M/s. Chennai Properties & Investments Limited (Supra) has held that if the Memorandum of Association of the assessee company was incorporated with the main objective to acquire and hold properties as well as make advances upon the security of land and buildings,etc. the rental income therefrom is to be assessed as income under the head income from business. In view the decision of the Hon’ble Supreme Court, the AO is directed to verify the Memorandum of Association and the main objects of the appellant company, and assess the income from construction and sale of Victoria Towers under the head ‘business’ if upon verification it is established that the activities of the company are in consonance with its main objects. Subject to this direction, this ground stands disposed. For statistical purpose, this ground is allowed.”
Aggrieved, Revenue is in appeal on this very issue only before us.
The only grievance argued by ld.Senior DR is that the CIT(A) has admitted the additional evidence like Memorandum of Association and aims & objects of the company in violation of provisions of Rule 46A of the Income Tax Rules, 1962 (hereinafter the ‘Rules’) and moreover he noted that the CIT(A) has set aside the issue to the file of the AO, for which he has no power. The ld.Senior DR apart from the above two grievances supported the order of the AO.
8 & 697/Chny/2017 & C.O. No.36/Chny/2017 9. The ld.counsel for the assessee stated that the CIT(A) following the decision of Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd., supra has directed the AO to compute the ALV of unsold flats and apartments which were shown as stock-in-trade as ‘business income’ instead of assessing the same as ‘income from house property’. He supported the directions of CIT(A) in directing the AO to assess the income of the assessee ‘business income’ and also supported remanding the matter back for verification purpose only. He also admitted these evidences i.e., Memorandum of Association and aims & objects as mentioned in Article of Association are very necessary for adjudication of this issue. He further stated that these documents are very much available in the public domain with the ROC (Registrar of Companies.)
After hearing the rival contentions, we noted that the assessee is engaged in the business of real estate and has constructed a project called ‘Victoria Towers’ whereby he has completed residential flats / apartments. As per the accounts the assessee has shown certain unsold apartments which are shown as stock-in-trade in its books of accounts. We noted that the CIT(A) has gone through the provisions of section 23 of the Act and noted that while
9 & 697/Chny/2017 & C.O. No.36/Chny/2017 determining the ALV of the assets held as stock-in-trade, the provisions of section 23 will not apply because assessee is engaged in the business of real estate and further having treated the said asset as ‘stock-in-trade’. We noted that the proviso added to section 23(5) of the Act, as introduced by Finance Act, 2017 w.e.f. 01.04.2018, wherein the scope of applying annual letting value has been extended to stock-in-trade and according to us, this is a prospective amendment and being a prospective amendment, the same would further fortify the plea of the assessee on the non- applicability of provisions relating to ALV to the unsold apartments kept by assessee as stock-in-trade during the assessment year under consideration i.e., 2012-13. Further, we are in agreement with the arguments of ld. Senior DR that the CIT(A) has no power to set aside the assessment but he has referred back the issue for limited purpose of verification of Memorandum of Association and Article of Association i.e., aims and objects of the assessee company.
With regard to the ground raised by Revenue on violation of Rule 46A of the Rules, we are of the view that these are vital documents and CIT(A) after admitting those and going through the same has held the income derived from unsold stock kept as stock-
10 & 697/Chny/2017 & C.O. No.36/Chny/2017 in-trade as ‘business income’. We find no infirmity in directing the AO to verify these documents. Hence, these issues raised in regard to income assessed on account of residential apartment of unsold stock in the project of ‘Victoria Towers’, of the Revenue’s appeal is dismissed.
Coming to the grounds raised by the assessee in its appeal which is connected to Ground II (B) raised qua the assessment of notional ALV of shopping mall i.e., Coromandal Plaza and consequently Ground No. III, disallowance of depreciation which was raised by assessee before CIT(A) reads as under:-
a. The assessee has claimed depreciation @ 10 % amounting to Rs.1,24,81,645/- on parking facility of the Shopping Complex Coromandal Plaza and depreciation of Rs.9,06,357/- on Plant and Machinery installed in the shopping complex Coromanda1 Plaza. b. The appellant has now made a prayer to the effect that the entire rental income earned from the Shopping Complex Coromandal Plaza be assessed as ‘Income from Business’ instead of ‘Income from House Property’. Hence, the earlier claim of the appellant before the assessing officer for depreciation on a portion of the business assets namely parking facilities and certain plant and machinery installed in the commercial complex now becomes merged with the prayer for treating the entire rental income as Business Income.
The ld.counsel for the assessee drew our attention to the ground raised that CIT(A) has not decided the grounds raised and “1.The order of the CIT(A) is contrary to the law in so far he has not adjudicated the grounds of appeal
raised before him in para No.II & III at page No.19 forming part of Form-35 and grounds of appeal.
2. The CIT(A) has not decided the specific issue relating to allowance of other expenses like depreciation on building, equipments etc., salary to staff, electricity, interest on money borrowed for construction of the shopping mall after having held that the income is business income only and not income from property.
3. The CIT(A) has not adjudicated the specific grounds of appeal relating to the claim of depreciation at 10% of Rs.1,24,81,645/- in respect of the parking facility of shopping complex “Coromandal Plaza” and depreciation at Rs.9,06,35 7/- on plant & machinery installed in the said shopping complex referred to in Para III page No.19 of the grounds of appeal raised before him forming part of Form-35.
4. The appellant submits that it has adduced all the evidences available in support of the said claim of expenditure in the form of invoices, site engineer’s report, ledger copies before the Assessing Officer which has been lost sight of b the CIT(A) while disposing off the appeal.”
14. When these grounds were confronted to ld. Senior DR, she only stated that matter can be remanded back to the file of the CIT(A) but this is a consequential issue. On the other hand, the ld. Counsel for the assessee stated that despite the fact that the assessee has raised a specific ground before CIT(A) in regard to allowance of expenses relating to operating of shopping mall in consequence to the treatment of shopping mall under the head ‘income from business’ and also allowance of expenses and depreciation, are not adjudicated. He also stated that once the
After hearing rival contentions and going through the case records, we are of the view that once the income of shopping mall Coromandal Plaza is assessed as business income, the consequential expenses and depreciation relating to the operation of shopping mall is to be allowed. But the AO will verify and also go into the genuineness of expenses and then will decide the issue. Hence, this issue is set aside to the file of the AO.
To sum up, the appeal filed by the Revenue in C.O No.36/Chny/2017 are dismissed and the appeal filed by the assessee in is allowed for statistical purpose.
Order pronounced in the court on 22nd February, 2022 at Chennai.