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Before: Shri V. Durga Rao & Shri G. Manjunatha
आयकर अपीलीय अिधकरण, ’बी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी वी दुगा� राव �ाियक सद� एवं �ी जी. मंजुनाथा, लेखा सद� के सम� Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. Nos.2202, 2203, 2204 and 2205/Chny/2019 िनधा�रण वष�/Assessment Years: 2011-12, 2012-13, 2013-14 & 2014-15 The Deputy Commissioner of Vs. M/s. Ampa Housing Development (P) Income Tax, Corporate Circle 1(1), Limited, No. 19, Raman Street, Chennai 600 034. T. Nagar, Chennai 600 017. [PAN:AACCA7430R] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Dr. I.P. Roopa JCIT ��थ� की ओर से/Respondent by : Shri B. Ramakrishnan, CA सुनवाई की तारीख/ Date of hearing : 06.01.2022 घोषणा की तारीख /Date of Pronouncement : 23.02.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: These four appeals filed by the Revenue are directed against the common order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai dated 15.03.2019 relevant to the assessment years 2011-12, 2012-13, 2013-14 and 2014-15. The only common effective ground raised by the Revenue for all the assessment years relates to apportioning the intermingled common expenditure with relation to business income and let out property income in the ratio of 50:50 without valid basis.
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All the appeals filed by the revenue are delayed by 35 days in filing the appeal before the Tribunal. The Revenue has filed a condonation petition in support of duly notarized affidavit to condone the delay. By referring to the condonation petition, the ld. DR has submitted that the delay in filing the appeals is neither wilful nor deliberate but due to circumstances beyond the control of the Revenue and pleaded that the delay may be condoned and admitted the appeals for adjudication. Against the above submissions, the ld. Counsel for the assessee has not raised any serious objection. Consequently, since the Revenue was prevented by sufficient cause, the delay of 35 days in filing of the appeals stands condoned and admitted the appeals for adjudication. Since common issue has been raised on identical facts, we shall take up the appeal for the assessment year 2011-12 for adjudication.
Facts are, in brief, that the assessee company is engaged in the business of Mall Management services, hotel and renting of space. During the year ended 31.03.2011, the assessee company has reported an income from house property of ₹.10,81,52,783/- and income from business a loss of ₹.9,43,28,803/-. While computing the
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income the assessee company has apportioned expenditure in the ratio of 50:50 based on the area. However, on verifying the turnover from house property and business income, the Assessing Officer determined the ratio of 83:17 by observing that the apportionment of income based on area of Mall and car parking is not a logical proposition. Accordingly, the Assessing Officer apportioned the expenses by adopting turnover percentage and determined the income to be assessed from house property at ₹.7,81,85,369/- and business loss at ₹.99,61,367/-. Similarly, the Assessing Officer has determined the expenses for the assessment years 2012-13, 2013-14 and 2014-15 also.
The assessee carried the matter in appeal before the ld. CIT(A). After considering the detailed submissions of the assessee and relying on various decisions, the ld. CIT(A) was of the opinion that the expenses of depreciation on building and furniture & fitting, repairs & maintenance (building & others), lease rent and insurance shall be allowed to the extent of 50% as claimed by the assessee based on the area of the property used for the purpose of letting out and for business purposes by observing that the assessee was not merely holding the
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property on investments, but carrying on the activities of running various business activities such as those pertaining to hotel and bar and event shows with a view to earning of profit. Therefore, in view of the decision in the case of CIT v. M.P. Boaz (1993) 200 ITR 131, the ld. CIT(A) has observed that the activity of the assessee falls under the ambit of business by holding that the block of assets of the assessee consists of building, furniture & electrical fittings, equipment & vehicle and computer. With regard to the building, furniture & electrical fittings, which form an integral part of the building, the assessee’s claim of depreciation @ 50% appears to be tenable as the area of the building can be used as a benchmark to determine the nature and allowability of expenses and allowed the claim of the assessee for all the assessment years under appeal.
Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR, vide written submissions dated 05.01.2022, has submitted the income reported for the purpose of income tax, emanates from operating the Mall and theatre is offered as business income while the rest earned from letting out of shops is offered as income from house property. The property is composite and portions of it have been
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earmarked between business income and house property income. The expenditure towards maintenance of the building were also common in the form of interest on loan obtained, property tax, insurance, repair and maintenance, depreciation, etc. and the assessee has disallowed 50% of the expenses and claimed the balance 50% against the business income. The allocation was made based on the area of constructed space used for business and the area that was let out. However, the Assessing Officer undertook apportionment of expenditure in the ratio of quantum of business income and quantum of house property income reported for the year. Since the income from business stood lower, the allocation from common expense was correspondingly lower and the balance that pertaining to house property income based on this revised arithmetic was disallowed while allowing standard deduction under section 24(a) @ 30%. The CIT(A) found that the allocation made by the assessee is fair and reasonable. The same is not acceptable since quantum of income derived under each head should be the best parameter to determine the allocation of costs. Thus, the ld. DR has submitted that the apportionment of expenditure in the ratio of 83:17 adopted by the Assessing Officer is correct and pleaded for sustaining the assessment order.
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On the other hand, the ld. Counsel for the assessee has strongly supported the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee is a private limited company engaged in the business of construction, mall management, etc. The assessee is operating a Mall under the name of “AMPA SKYWALK” in Poonamallee High Road, Chennai. During the relevant assessment years, the assessee had derived rental income from various tenants in the Mall and apart from this, it has other business income/ allied income in the form of car parking fee collections, hotel and bar, branding event promotions, etc. The assessee has duly offered the rental receipts under the head “house property” and had claimed the deductions allowable as per the applicable provisions of the Act. The other receipts like car parking fees, promotional events, branding, etc. are duly admitted under the head “income from business”. In the profit and loss account of the assessee, the expenses relating to the owning and managing of the Mall, administrative and other marketing expenses, have been debited. The above facts are not disputed by the Department. In computing the
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taxable income as per the provisions of the Income Tax Act, the assessee had bifurcated various expenses debited in the profit and loss account, in the following manner: a. expenses purely in relation to property, b. expenses purely in relation to business and c. expenses which are common and closely interlaced between house property income and business income. Thus, while computing the incomes under the head house property and income from business, the assessee had clearly identified the above expenditure and claimed it accordingly. Further, with regard to the expenditure which are common in nature, the assessee had duly disallowed 50% of the expenses incurred as the same was attributed by them towards house property income and only the balance 50% expenditure was claimed under the head business. The above ratio was based on the built-up space in the Mall, which was attributable to portions let out to various parties and portions on which the assessee had derived business income. However, the Assessing Officer has not accepted the computation of income by apportioning the expenditure in the ratio of 50:50 based on the area and determined the ratio of 83:17.
7.1 During the course of appellate proceedings, by giving a detailed bifurcation of built-up area, it was the submission of the assessee
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before the ld. CIT(A) that the entire built-up area owned by the assessee is about 6,48,170 sq. ft., out of which, 2,91,677 sq. ft. has been used to let out to various parties on monthly rental and the balance area i.e., 3,56,496 sq. ft. was used for the business purposes i.e., 45% of the area was let out and 55% of the area was used for business purposes. With regard to expenditure purely in the nature of business, the assessee had grouped the expenses in the three parts: Part 1: Expenses fully allowed Part 2: Expenses allowed in the proportion of rental receipts to business receipts Part 3: Expenses allowed inconsistently in various years. With regard to the items of expenses falling under Part 1 i.e., cost of materials consumed and employee benefit expenses, the Assessing Officer has allowed the expenditure in full as claimed by the assessee and the same is not in dispute. However, with regard to items of expenses pertaining Part 2 and Part 3, the assessee has stated before the ld. CIT(A) that they are administrative in nature and purely in the course of its business, which have to incur for running a company irrespective of the turnover that is being made. Hence it was urged that it had to be allowed in full as there was no connection between the quantum of rental and business receipts for these types of expenditure.
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The assessee also pointed out before the ld. CIT(A) that while salary to
employees is fully allowed as relating to business in all the assessment
years, it would be illogical to consider the other expenses as common
to both house property and business.
7.2 After considering the submissions of the assessee the ld. CIT(A)
has observed as under:
“I have carefully considered the submissions of the appellant. As pointed out by the appellant that the said expenses have to be incurred for carrying out his business, irrespective of the quantum of revenue/turnover involved. If this proportionate method of allowance is adopted it could result in an absurd scenario when there are no business receipts during a year, no expenses shall be allowed. Further, all the expenses incurred in relation the business are to be considered allowed as business expenditure while computing the income under the head Business as per the provisions of section 28 of the Act. Thus the AO is directed to allow the expenses as per the said section. A perusal of the various expenses claimed by the appellant indicates that they relate to the business of running a mall, hotel, bar and events. While some expenses are administrative in nature, the other expenses pertain to advertising, business promotion and maintenance of the business premises. Taking into account the entire scenario the following expenses are to be treated as allowed for the asst. years 11-12, 12-13, 13-14 and 14-15:
Category B. Expenses purely in relation to Business: AY 2011-12 AY 2012-13 Part 2 AY 2013-14 AY 2014-15 Depreciation on: Equipment & Vehicles and Computer 1,42,90,227 1,19,88,118 98,74,685 87,25,871 Audit Fees 33,090 28,530 38,500 35,000 Rates & Taxes 3,93,400 19,75,676 12,07,191 37,54,716 Power and fuel - - 22,77,944 84,24,218 Office maintenance 2,65,488 2,27,104 73,515 35,935 Annual Maintenance Charges 1,98,914 36,655 4,56,220 4,15,448 Printing & Stationery 6,05,212 11,40,327 9,32,643 8,92,781 Telephone charges 1,04,216 1,77,563 1,59,826 58,470 Conveyance 29,583 88,292 68,366 1,53,169 Miscellaneous Expenses 8,43,619 12,19,005 15,72,009 7,93,942 Bank charges 3,08,944 2,08,596 17,97,571 65,195 Loading and unloading charges 900 32,980 50,000 24,000
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Travelling Expenses 5,39,598 7,35,092 41,393 34,000 Hire charges - 22,900 12,6760 18,874
PART 3: Car Parking Charges 82,92,976 96,73,461 77,767,842 60,88,072 Others - 1,44,799 19,023 26,472 Advertisement & other marketing 41,76,465 43,88,700 23,04,439 26,57,013 Event expenses – Bar - 1,86,500 4,71,500 2,14,110 Service charges for Hotel - - 1,14,282 1,05,753 Signage Materials Expenses and Charges 81,31,195 27,57,797 2,89,348 2,59,125 Commission/Discounts – Hotel - - - 8,646 Sky Hotel Admin Expenses 4,10,846 3,40,106 5,74,530 3,12,912 Bar Administration Expenses - 1,01,779 2,31,039 88,986 Professional & Consultation Charges 29,40,558 9,83,678 11,03,182 12,94,047 Filing fees & Other charges 57,016 3,381 28,090 - Security Charges - - - 4,83,196 Business Promotion Expenses - - 90,699 57,720
With regard to the expenses under Category C, i.e., expenses which are common to both let out property and business, the appellant has by itself restricted the claim of expenses to 50% while computing the Income under the head business as explained in the earlier paras.
The appellant submits that the amount paid towards interest on borrowings related to property and property/water taxes paid for the property has to be allowed in the ratio of 50:50 under the heads income from house property and business respectively whereas the AO has allowed it in the ratio of rental receipts to business receipts for all the assessment years under consideration. In this regard, the appellant had furnished the following details:
Item Interest on Borrowings Property & Water Taxes AY Amount claimed by Amount allowed by AO Amount claimed by Amount allowed by Appellant Appellant AO 11- Rs.6,38,47,963 – PGBP Rs.2,15,55,130 – PGBP Rs.43,99,060 – PGBP Rs.15,55,647 – PGBP 12 Rs.6,38,47,963 – IFHP Rs.10,61,40,796 – IFHP Rs.43,99,060 – IFHP Rs.72,42,474 – IFHP 12- Rs.7,06,90,016 – PGBP Rs.2,68,82,206 – PGBP Rs.85,32,653 – PGBP Rs.32,42,408 – PGBP 13 Rs.7,06,90,016 – IFHP Rs.11,45,17,826 – IFHP Rs.85,32,653 – IFHP Rs.1,38,22,897-IFHP 13- Rs.6,14,91,808 – PGBP Rs.1,91,85,444 – PGBP Rs.30,62,445 – PGBP Rs.9,55,483 – PGBP 14 Rs.6,14,91,808 – IFHP Rs.10,37,98,171-IFHP Rs.30,62,445 – IFHP Rs.51,69,407 – IFHP 14- Rs.4,00,25,963 – PGBP Rs. 93,72,744 – PGBP Rs.38,75,078 – PGBP Rs. 8,80,418 – PGBP 15 Rs.4,00,25,963 – IFHP Rs.7,06,79,182 – IFHP Rs.38,75,078 – IFHP Rs.68,69,738 – IFHP [PGBP: Profits and Gains from Business or Profession IFHP: Income from House Property]
It is stated by the appellant that the expenses under the head Depreciation on building and furniture fittings, repairs & maintenance (Building & Others), Lease rent and insurance are commonly related to house property and business and hence the appellant itself has restricted the claim to 50% of the
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actual expenses incurred while arriving at the income under the head Business. The AO had allowed the expenditure under these heads in the ratio of business receipts to rental receipts in all the relevant assessment years. The appellant objects to the above treatment by the AO. Although, Depreciation is not unrelated to profits, it is a measure of wear and tear of assets used in the business due to use or passage of time and not related to business earnings. As per Sec. 32 of the Income tax Act, Depreciation is to be calculated at the rates prescribed and to be allowed in the course of computing income under the head Business. The only restriction is for assets which are newly acquired and which are put to use for a period of less than 180 days during the year. The claim, in such cases, shall be restricted to 50% of the allowable depreciation. The Hon’ble ITAT, Kolkata in ITA No. 1394/Kol/2010 for assessment year 2005-06 in the case of Banani Properties Pvt. Ltd. V. Department of Income Tax, while deciding on the allowability of expenses claimed by a business entity held that “As the business of the assessee has not been discontinued, the expenses incurred for the maintenance of the corporate entity has to be allowed as legitimate business expenses during the relevant previous year, even though there was no business receipts”. In the instant case, the claim of expenses i.e., Depreciation on Building and Furniture Fittings, Repairs & Maintenance (Building & Others), Lease Rent and Insurance shall be allowed to the extent of 50% as claimed by the appellant based on the area of the property used for the purpose of letting out and for business purposes. The appellant is not merely holding property on investments but carrying on the activity of running various business activities such as those pertaining to hotel and bar and event shows with a view to earning profit. Hence, as held in the case of CIT vs. M.P. Boaz (1993) 200 ITR 131, the appellant’s activity falls under the ambit of business. The block of assets of the appellant consists of Building, Furniture & Electrical Fittings, Equipment & Vehicles and Computers. With regard to the Building, Furniture & Electrical fittings which form an integral part of the building, the appellant’s claim of depreciation @ 50% appears to be tenable as the area of the building can be used as a benchmark to determine the nature and allowability of expenses. The claim of expenditure, as claimed by the appellant, shall be allowed as follows in computing the Income under the head Business: AY 2011-12 AY 2012-13 PART 2: AY 2013-14 AY 2014-15 Depreciation on: Building and Furniture Fittings 2,59,31,850 2,61,91,355 2,48,82,804 2,32,89,138 Repairs and Maintenance – Building 44,91,502 1,75,98,947 40,35,431 15,40,685
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Repairs and Maintenance – Others - 99,670 45,58,155 19,62,425 Insurance 5,64,402 3,71,182 3,80,946 3,55,987 PART 3: Lease Rent Paid 6,00,000 6,00,000 6,00,000 6,00,000 7.3 In this case, while computing the incomes under the head house property and income from business, the assessee had clearly identified the expenditure and claimed it accordingly. Further, with regard to the expenditure which is common in nature, the assessee had duly disallowed 50% of the expenses incurred as the same was attributed by them towards house property income and only the balance 50% expenditure was claimed under the head business. The above ratio was based on the built-up space in the Mall, which was attributable to portions let out to various parties and portions on which the assessee had derived business income. Further, the entire built-up area owned by the assessee is about 6,48,170 sq. ft., out of which, 2,91,677 sq. ft. has been used to let out to various parties on monthly rental and the balance area i.e., 3,56,496 sq. ft. was used for the business purposes i.e., 45% of the area was let out and 55% of the area was used for business purposes. Further, in this case, the assessee has grouped the expenses purely in the nature of business in three parts and the items of expenses falling under Part 1 i.e., cost of materials consumed
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and employee benefit expenses, the Assessing Officer has allowed the expenditure in full as claimed by the assessee and the same is not in dispute. However, with regard to items of expenses pertaining Part 2 and Part 3, i.e., expenses allowed in the proportion of rental receipts to business receipts and expenses allowed inconsistently in various years, respectively, the assessee has stated that they are administrative in nature and purely in the course of its business, which have to incur for running a company irrespective of the turnover that is being made. Moreover, there was no connection between the quantum of rental and business receipts for these types of expenditure. When the salaries to employees are fully allowed as relating to business in all the assessment years, we are of the opinion that it would be illogical to consider the other expenses as common to both house property and business. The assessee has pointed out before the ld. CIT(A) that the said expenses have to be incurred for carrying out his business, irrespective of the quantum of revenue/turnover involved and if this proportionate method of allowance is adopted it could result in an absurd scenario when there are no business receipts during a year, no expenses shall be allowed. Further, all the expenses incurred in relation the business are to be considered allowed as business
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expenditure while computing the income under the head Business as per the provisions of section 28 of the Act. Therefore, the ld. CIT(A) has rightly directed the Assessing Officer to allow the expenses as per the said section. A perusal of the various expenses claimed by the assessee indicates that they relate to the business of running a mall, hotel, bar and events. While some expenses are administrative in nature, the other expenses pertain to advertising, business promotion and maintenance of the business premises. Taking into account the entire scenario, the ld. CIT(A) has rightly allowed the expenses for the assessment years 2011-12, 2012-13, 2013-14 and 2014-15. In this case, the assessee is not merely holding the property on investments, but carrying on the activity of running various business activities such as those pertaining to hotel and bar and event shows with a view to earning of profit. After considering the detailed submissions, the ld. CIT(A) has observed that the assessee’s activity falls under the ambit of business. The block of assets of the assessee consists of building, furniture & electrical fitting, equipment & vehicle and computers. With regard to the building, furniture & electrical fittings which form an integral part of the building, the ld. CIT(A) has observed that the claim of depreciation @ 50% is tenable as the area of the building can be
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used as a benchmark to determine the nature and allowability of expenses and accordingly, the ld. CIT(A) rightly allowed the expenses as claimed by the assessee in computing the income under the head “Business”.
7.4 We have also considered the written submissions of the ld. DR. However, the ld. DR has not stated as to how the apportionment of expenditure in the ratio of 83:17 adopted by the Assessing Officer is correct with material evidence or adopted by the ld. CIT(A) is not correct. Accordingly, the contention of the ld. DR is rejected.
7.5 Under the above facts and circumstances, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the grounds raised by the Revenue are dismissed for the assessment year 2011-12.
The Revenue has raised similar grounds for the assessment years 2012-13, 2013-14 and 2014-15 on identical facts as described hereinabove for the assessment year 2011-12. In view of our above decision for the assessment year 2011-12, the grounds raised by the
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Revenue for the assessment years 2012-13, 2013-14 and 2014-15 are also dismissed.
In the result, all the appeals filed by the Revenue are dismissed.
Order pronounced on 23rd February, 2022 at Chennai.
Sd/- Sd/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 23.02.2022 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.