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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-4, Mumbai, dated 30.01.2018, which in turn arises from the assessment order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 31.12.2016 for A.Y. 2014 -15. The assessee has assailed the impugned order on the following revised grounds before us: “1. The Hon‟ble CIT(A) ought to have appreciated the fact that the appellant could not represent the matter due to circumstances beyond his control.
2. The Hon‟ble CIT(A) as well as ld. A.O ought to have allowed the total interest of Rs.58,77,140/- as Expenditure incurred for earning Professional Income.
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3. The Hon‟ble CIT(A) as well as Ld. A.O erred in considering the Notional Income of Rs.17,15,589/- on the 3 house Properties, of which one is sold during the year and others were used business and profession.
4. The Hon‟ble CIT(A) and the Ld. A.O failed to appreciate the fact that the Midas Banquet Hall was a depreciable asset falling within the block of asset and hence the sale of the said asset ought to have been calculated under Sec.50 of the I. T. Act.”
Briefly stated, the assessee who is a film actor had e-filed a revised return of income for A.Y. 2014-15 on 30.11.2014, declaring a total income of Rs.Nil after claiming current year loss of Rs.46,12,269/-. The return of income filed by the assessee was processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
3. Assessment was framed by the A.O vide his order passed u/s 143(3), dated 31.12.2016 at an income of Rs. 2,45,48,460/- after inter alia making the following additions/disallowances:
Sr. No. Particulars Amount 1. Disallowance of interest expenditure u/s 36(1)(iii) Rs. 58,77,140/- 2. Addition towards the notional lettable value of three Rs. 17,15,589/- house properties owned by the assessee.
3. Addition u/s 50C qua the difference in the segment Rs.2,15,68,000/- rate of property sold as against the actual sale consideration received by assessee.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Qua the disallowance of interest expenditure of Rs.58,77,140/-, the CIT(A) finding no infirmity in the view taken by the A.O upheld the same. Also, the addition of Rs. 2,15,68,000/- made by the A.O u/s 50C of the Act was upheld by the CIT(A). Insofar, the addition towards the notional lettable value u/s 23(1)(a) of the Act was concerned, it was inter alia observed by the CIT(A) that it was the claim of the assessee that as the flat owned by him at Pune had been sold in F.Y. 2012-13, therefore, no deemed lettable value for the year under consideration qua the said property could have been brought to tax in his hands. In the backdrop of the aforesaid claim of the assessee the CIT(A) directed the 3 Shreyas Anil Talpade Vs. ACIT 16(1)
A.O to verify the veracity of the same and allow the consequential relief to him after carrying out necessary verifications. Accordingly, the CIT(A) partly allowed the appeal of the assessee.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Before proceeding any further, we may herein observe that the assessee has filed an application seeking admission of „additional evidence‟ under Rule 29 of the Appellate Tribunal Rules, 1963. The assessee has sought admission of the following documents as „additional evidence‟ before us:
Sr. No. Particulars Page No. 1. The copy of the Email – letters from 3 script writers, 3 to 5 viz. Mrs. Pratima Kulkarni, Mrs. Sharvari Patankarand Mr. Sandesh Nayak, stating that they visited the premises 13B – 14B for official work. 2. The copies of Photographs showing photo shoot of 6 to 12 models, Rehearshal, Audition, Look Test and etc. 3. The copies of Purchase Agreement and Sale 13 to 66 Agreement of the Midas Banquet Hall.
Also, the assessee has filed an „affidavit‟ therein narrating the reasons due to which the aforesaid documents could not be filed before the lower authorities. It is the claim of the assessee that the aforementioned documentary evidence which have a strong bearing on the adjudication of the issues before us had remained omitted to be filed before the lower authorities, for the reason, that the respective counsels engaged by him for appearing on his behalf before the lower authorities, had either failed to communicate to him about the requisite details and documents that were required to be filed in the course of the proceedings before the lower authorities, and/or had adopted a lackadaisical approach resulting to non-furnishing of the said documents before the said respective authorities. It is further stated by the assessee that as he is a film artist and not technically qualified, therefore, not being aware of the fact that the aforesaid
4 Shreyas Anil Talpade Vs. ACIT 16(1) documents were indispensably required to be filed to dispel all doubts, and substantiate his respective claims that were raised in the return of income, the same, thus, had resulted to the aforesaid failure in not placing the said documents on the records of the lower authorities.
We have perused the aforesaid application filed by the assessee under Rule 29 of the Appellate Tribunal Rules, 1963, which is supported by his „affidavit‟ substantiating the reasons leading to failure on his part in filing the aforementioned documents before the lower authorities. After giving a thoughtful consideration, we are of the considered view that there are bonafide reasons on the part of the assessee in not filing the aforementioned documents before the lower authorities and no fault can be attributed to him. Although, an assessee cannot be allowed to wriggle out of the failures on the part of his duly authorized counsel in properly prosecuting the matter before the authorities, but then, keeping in view the facts involved in the present case we hold a strong conviction that the assessee before us had acted in a bonafide manner and no fault can be attributed to him qua the non-filing of the aforementioned documents with the lower authorities. We, thus, in the backdrop of our aforesaid deliberations are of the considered view that the „additional evidence‟ filed by the assessee before us merits to be admitted.
We shall now advert to the respective issues which have been raised by the assessee before us. The assessee is aggrieved with the disallowance of his claim for deduction of the interest expenditure of Rs. 58,77,140/-. As is discernible from the orders of the lower authorities, it was observed by the A.O that the assessee had availed bank OD of Rs.2.04 crores, secured loan of Rs.3.99/- crores and unsecured loans of Rs.91 lacs. It was observed by him that the assessee had claimed deduction of interest expenditure of Rs.58,77,140/-, as under :
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Sr. No. Particulars Amount 1. Interest on OD(Axis Bank) Rs. 82,830/- 2. Interest on OD(Deustsche Bank) Rs. 8,58,719/- 3. Interest on secured loan Rs. 1,38,999/- 4. Interest on LAP Rs.43,00,159/- 5. Interest on term loan Rs. 4,96,433/- Total Rs.58,77,140/- Apropos the aforesaid claim for deduction of interest expenditure, it was observed by the A.O that the assessee had given certain interest free loan and advance of Rs.62,91,560/- towards certain policy, besides making investments in certain fixed assets, viz. residential premises, banquet hall and other properties. Observing, that all the aforesaid assets were the personal assets of the assessee and had no nexus with his profession as that of an actor, the A.O called upon him to explain as to why the entire amount of his claim for deduction of interest expenditure may not be disallowed. In reply, the assessee vide his letter dated 09.12.2016 inter alia submitted a vague reply and failed to place on record any documentary evidence in support of his aforesaid claim for deduction of interest expenditure. Observing, that the reply filed by the assessee was vague and not supported by any documentary evidence, the A.O disallowed the claim for deduction u/s 36(1)(iii) of Rs.58,77,140/- that was raised by the assessee. Also, the A.O while concluding as hereinabove, observed, that the assessee as against his normal professional income and a paltry interest income had claimed deduction of the aforesaid exorbitant amount of interest expenditure. Backed by his aforesaid observation, the A.O disallowed the assessee‟s claim for deduction of interest expenditure of Rs.58,77,140/-. On appeal, the assessee tried to impress upon the CIT(A) that the interest expenditure of Rs.58,77,140/- on the loans were incurred by him qua his profession as that of a film artist and furnished the details as regards the same, as under:
Sr. No. Particulars Amount Utilisation 1. Interest on OD Axis Bank 82,830 Utilization for pre-production of movie Poster Boys. 2. Interest on OD (Deustsche 8,58,719 Amount being used to purchase of 6 Shreyas Anil Talpade Vs. ACIT 16(1)
Bank) commercial property located at Samarth Aishwarya which is subsequently let out.
Interest on Secured Loans 1,38,999 They are utilized to pay the overdraft of Axis Bank.
Interest on LAP 43,00,156 Amount being used to purchase at (Deustsche Bank) Godrej Waldrof (13B/14B) of which 14B is used for residential purpose and 13B used as business property.
5. Interest on term loan 4,96,433 Amount being used to purchase at (Deustsche Bank) Godrej Waldrof (13B/14B) of which 14B is used for residential purpose and 13B used as business property. It was however observed by the CIT(A) that neither of the aforesaid details were submitted before the A.O. Apart from that, it was noticed by the CIT(A) that the assessee had not furnished any documentary evidence to substantiate his aforesaid claim for deduction of interest expenditure on the basis of any „additional evidence‟ filed before him U/rule 46A of the Income Tax Rules, 1962. It was observed by the CIT(A) that except for the interest expenditure of OD account paid to Axis Bank which was stated to have been utilized for pre- production of a film, viz. „Poster Boys‟ all other interest expenditure were in respect of properties that were purchased by the assessee. It was further noticed by him that the assessee had failed to furnish any material which would substantiate his claim that the aforementioned properties were used as a business property. Apropos the property at 14B Godrej Waldrof, it was observed by the CIT(A) that the same was admitted by the assessee to have been used for residential purposes. Backed by his aforesaid observations, the CIT(A) was of the view that the interest paid on borrowed funds that were utilized for acquisition of property i.e a residential or commercial property could only be allowed as a deduction u/s 36(1)(iii) of the Act where the said properties were used for the purpose of business. It was, thus, observed by the CIT(A) that in the absence of any supporting documents submitted either during the course of the assessment
7 Shreyas Anil Talpade Vs. ACIT 16(1) proceedings or in the course of the proceedings before him, the aforesaid claim for deduction of the interest expenditure did not merit acceptance.
Before us, it was submitted by the ld. A.R that the aforementioned properties were used by the assessee for the purpose of his business, and thus, the correlating interest expenditure was therein allowable as a deduction u/s 36(1)(iii) of the Act. In order to drive home his aforesaid claim the ld. A.R took us through the relevant documents which were filed before us as „additional evidence‟, viz. letters from 3 script writers i.e Ms. Pratima Kulkarni, Ms. Sharvari Patankar and Mr. Sandesh Nayak, wherein they had stated that they had visited the premises of the assessee i.e Godrej Waldrof 13B and 14B for official work. Also, the ld. A.R in order to buttress his aforesaid claim that the properties in question were used by the assessee for the purpose of his business took us through the photographs showing photo shoots of models, rehearsals, auditions, look tests etc. On the basis of the aforesaid documentary evidence, it was the claim of the ld. A.R that the aforementioned properties in question were undeniably being used by the assessee for the purpose of his business.
We have heard the ld. Authorized Representatives for both the parties and perused the orders of the lower authorities, as well as the material available on record to which our attention was drawn in the course of hearing of the appeal. As the aforesaid documents, viz. letters of the scripts writers; photographs showing photo shoots of models; rehearsals; auditions; look tests etc. to which our attention was drawn by the ld. A.R in order to fortify his claim that the aforementioned properties in question were being used by the assessee for the purpose of his business had though been admitted by us as „additional evidence‟, however, the same were not there before the A.O in the course of the assessment proceedings. In the backdrop of the aforesaid facts, we are of the considered view that the matter in all fairness qua the assessee‟s claim for deduction of interest expenditure of Rs.58,77,140/- requires to be revisited by the 8 Shreyas Anil Talpade Vs. ACIT 16(1)
A.O. We, thus, set-aside the matter to the file of the A.O with a direction that he shall re-adjudicate the matter after considering the aforementioned documents that have been filed by the assessee before us as „additional evidence‟ placed at Page No. 3 to 66 of his „Paper book‟ (for short „APB‟). Needless to say, the A.O while re-adjudicating the aforesaid issue shall afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his aforementioned claim. Accordingly, the matter is set-aside to the file of the A.O for re-adjudication in terms of our aforesaid observations. The Ground of appeal No. 2 is allowed for statistical purposes.
10. We shall now take up the grievance of the assessee that the A.O had erred in considering the notional lettable value of the 3 house properties of which one was sold during the year, while for the others were being used by the assessee for the purpose of his business and profession. As is discernible from the assessment order, it was observed by the AO that the assessee owned the following immovable properties:
Sr. No. Name of Property Value as per Balance sheet 1. Property at Waldrof –(14B) – office Rs.2,20,57,530/- 2. Property at Waldrof –(13B) – Residential Rs.2,20,57,530/- 3. Office Premises – Godrej Waldrof Rs. 80,78,000/- 4. Residential flat – Pune city Rs. 5,00,000/- It was noticed by the A.O that the assessee had not shown any income under the head „house property‟ qua the aforementioned properties. Accordingly, the A.O treating one of the property viz. property at Godrej Waldrof 13B as a self- occupied residential property, therein worked out the Annual Lettable Value (ALV) of the remaining properties. Although, it was the claim of the assessee that one of the residential property was being used by him as his office, however, in the absence of any proof the said claim was rejected by the A.O. Accordingly, the A.O backed by his aforesaid observations worked out the ALV of the aforementioned 3 properties at Rs.17,15,589/-, as under:
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Sr. No. Name of property Value as 8% of the Less 30% Net value after per balance book value deduction u/s 30% deduction sheet 24(a) u/s 24(a) 1. Property at Waldrof 2,20,57,530 17,64,602 5,29,381 12,35,221 – (13B)- office 2. Office premises – 80,78,000 6,46,240 1,93,872 4,52,368 Godrej Waldrof 3. Residential flat – 5,00,000 40,000 12,000 28,000 Pune Total 24,50,842 7,35,253 17,15,589 On appeal, it was inter alia submitted by the assessee that as the property owned by him at Pune was sold during the year, therefore, there was no question of determining the ALV of the same. Insofar the aforesaid claim was concerned, the CIT(A) in all fairness directed the A.O to verify the genuineness and veracity of the same and allow the consequential relief after carrying out necessary verifications.
Before us, it is submitted by the ld. A.R that the aforementioned properties were being used by the assessee for business purposes. In order to drive home his aforesaid claim, the ld. A.R once again took us through the relevant documents which were filed before us as „additional evidence‟. It was the claim of the ld. A.R that as the aforementioned properties in question were being used by the assessee for business purposes, therefore, there was no question of subjecting their ALV to tax in his hands under the head „Income from house property‟.
We have given a thoughtful consideration to the aforesaid issue in question before us. Section 22 of the Act carves out an innate exception, as per which the „annual lettable value‟ of such portion of a property owned by an assessee, which is occupied by him for the purpose of any business or profession carried on by him the profits of which are chargeable to income tax, cannot be brought to tax on a notional basis under the head „Income from house property‟. As observed by us hereinabove, it is the claim of the assessee that the 10 Shreyas Anil Talpade Vs. ACIT 16(1)
aforementioned three properties in question were being used by him for business purposes. As we have while adjudicating the assessee‟s claim for deduction of interest expenditure qua the loans raised by him for acquiring the aforementioned properties, therein, restored the matter to the file of the A.O for re-adjudicating the issue after making necessary verifications after considering the „additional evidence‟ filed by the assessee before us, therefore, as a corollary thereto the present issue i.e saddling the asssessee with tax qua the ALV of the said properties which as claimed by him had been acquired and were being used by him during the year under consideration for his business purposes, in all fairness, also requires to be restored to the file of the A.O. Accordingly, the A.O is directed to verify as to whether or not the aforementioned properties in question were being used by the assessee during the year under consideration for the purpose of his business. In case, if the aforesaid claim of the assessee is found to be in order and the properties in question were used by the assessee during the year under consideration for the purpose of his business, then, the ALV of such properties would not be brought to tax by the A.O under the head „house property‟. The Ground of appeal no. 3 is allowed for statistical purposes in terms of our aforesaid observations.
13. We shall now take up the grievance of the assessee that the lower authorities had erred by failing to appreciate that as the property sold by him during the year, viz. Midas Banquet Hall was a depreciable asset that formed part of the „block of assets‟, therefore, the sale of the same ought to have been considered under Sec. 50 of the Act. Briefly stated, the assessee had sold an immovable property viz. Midas Banquet Hall for a consideration of Rs.1,75,00,000/-. On a perusal of the agreement/registration deed, it was observed by the A.O that the registrar had adopted the stamp duty valuation of the aforesaid property at an amount of Rs.3,90,68,000/-. In the backdrop of the aforesaid facts, the A.O called upon the assessee to put forth an explanation as 11 Shreyas Anil Talpade Vs. ACIT 16(1)
to why the value adopted by the registrar may not be taken as the deemed sale consideration for the purpose of computing the LTCG by applying the provisions of Sec. 50C of the Act. As the reply filed by the assessee did not find favour with the A.O, therefore, he adopted the sale consideration of the aforementioned property at Rs.3,90,68,000/- and made a consequential addition of Rs.2,15,68,000/- [Rs.3,90,68,000/- (-) Rs.1,75,00,000/-] towards LTCG in the hands of the assessee. On appeal, it was the claim of the assessee that as the property in question, viz. Midas Banquet Hall was a depreciable asset that formed part of the „block of assets‟, therefore, the A.O loosing sight of the material fact as regards the existence of the „block of assets‟ post reduction of the value of part of the assets had wrongly made the addition in the hands of the assessee. The working of the details furnished by the assessee as regards the existence of the „block of assets‟ post reduction of the value of the property sold reads as under :