Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCH, ‘B’ PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
आदेश / ORDER
PER R.S. SYAL, VP :
This appeal by the assessee arises of the order dated
09-10-2017 passed by the CIT(A)-5, Pune in relation to the
assessment year 2010-11.
This appeal is time barred by 59 days. The assessee has
filed an affidavit explaining the reasons for the delay. The said
reasons have been perused and found to be satisfactory. Ergo, the
delay is condoned and the appeal is admitted for hearing.
2 ITA No.474/PUN/2018 Atul Jaiprakash Goel
The first issue raised in this appeal is against the addition of
Rs.7,83,692/- made by treating the rental income as ‘Business
income’ as against the assessee’s claim of the same being
‘Income from house property’.
Succinctly, the facts of the case are that the assessee is a
Builder, Promoter and Developer. He developed projects by
name “Gangadham Commercial” and “Ganga Collidium”. Some
of unsold units in these projects were let out on rent, income from
which was declared as ‘Income from house property’ after
statutory deduction. The Assessing Officer (AO) held that letting
out activity was incidental to the main business activity and
hence, such income from letting was also to be treated as
‘Business income’. He, therefore, disallowed the statutory
deduction claimed by the assessee, which resulted into an addition
of Rs.7,83,692/-. The ld. CIT(A) echoed the assessment order
on this point.
We have heard the rival submissions and gone through the
relevant material on record. The assessee is a builder who had
certain unsold flats/units in his possession. Such flats were let out
and the income was earned therefrom. The short question before
us is as to whether such income would constitute ‘Income from
3 ITA No.474/PUN/2018 Atul Jaiprakash Goel
house property’ or would partake of the character of Business
income. In this regard, we find that the Hon’ble Bombay High
Court in CIT Vs. Sane and Doshi Enterprises (2015) 58
taxmann.com 111 (Bom.) has dealt with a similar issue and held
that the rental income received from unsold portion of the
property constructed by the assessee, a real estate developer, is
assessable as ‘Income from house property’. The facts of the
instant case are on all fours with the case before the Hon’ble
Bombay High Court. No contrary decision has been brought to
our notice by the ld. DR. It is further relevant to note that the
Finance Act, 2017 has inserted section 23(5) providing that where
the property consisting of any building or land appurtenant thereto
is held as stock-in-trade and the property or any part of the
property is not let during the whole or any part of the previous
year, the annual value of such property or part of the property, for
the period up to two (earlier it was one) years from the end of the
financial year in which the certificate of completion of
construction of the property is obtained from the competent
authority, shall be taken to be nil. This shows that but for the
exceptions provided under this provision, the legislature
contemplates to compute income under such circumstances under
4 ITA No.474/PUN/2018 Atul Jaiprakash Goel
the head `Income from house property’ and not as Business
income. Respectfully following the afore referred precedent of
the Hon’ble jurisdictional High Court, we hold that the rental
income earned by the assessee from unsold portion of the
property should be taken as ‘Income from house property’. This
ground is, therefore, allowed.
The only other ground which survives for consideration is
the confirmation of disallowance of Rs.2,01,816/- made by the
AO u/.s.14A of the Act.
The facts of this ground are that the assessee was in receipt
of certain exempt income. No disallowance u/s.14A of the Act
was offered. On being called upon to explain the reasons, the
assessee tendered some explanation, which has been taken note
of by the AO in the assessment order. Rejecting the assessee’s
explanation, the AO invoked provisions of section 14A read with
Rule 8D for making disallowance of Rs.2,01,816/-, consisting of
disallowance of expenses on account of interest at Rs.4,792/- and
disallowance at 0.5% of average value of investments at
Rs.1,97,024/-. The ld. CIT(A) sustained the disallowance.
Having heard both the sides and gone through the relevant
material on record, we find from the balance sheet, a copy placed
5 ITA No.474/PUN/2018 Atul Jaiprakash Goel
at page 51 of the paper book that the Investments made by the
assessee stand at Rs.18.44 crore as against his capital of Rs.34.34
crore. Thus, the disallowance of interest is not warranted because
the amount of Investments in shares/firms etc. fetching exempt
income is quite less than the amount of share capital of the
assessee.
Now turning to the second part of disallowance, being, 0.5%
of the average value of investments, we find that the assessee did
not offer any suo motu disallowance u/s.14A. The AO recorded
satisfaction on this score and thereafter made the disallowance to
this extent. In our opinion, no exception can be taken to the
action of the AO in making such disallowance. However, the ld.
AR pointed out that the total expenses claimed by the assessee in
its Profit and loss account were only Rs.20,029/-. It goes without
saying that the disallowance of expenses u/s 14A cannot exceed
the amount of actual expenses claimed by the assessee. We,
therefore, set-aside the impugned order and remit the matter to the
file of the AO for examining this aspect of the matter and restrict
the disallowance at 0.5% of the average value of investments
subject to maximum of the expenses claimed by the assessee in
his Profit and loss account.
6 ITA No.474/PUN/2018 Atul Jaiprakash Goel
In the result, the appeal is partly allowed. Order pronounced in the Open Court on 22nd June, 2022.
Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 22nd June, 2022 सतीश आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent 2. 3. The CIT(A)-5, Pune 4. The Pr.CIT-4, Pune 5. DR, ITAT, ‘B’ Bench, Pune गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA No.474/PUN/2018 Atul Jaiprakash Goel
Date 1. Draft dictated on 21-06-2022 Sr.PS 2. Draft placed before author 22-06-2022 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *