BIRYAS FINANCE AND INVESTMENTS PVT. LTD.,MUMBAI vs. ITO -WD- 2(1)(2), MUMBAI

सुनवाईकीतारीख/ : 30/09/2019 Date of Hearing घोषणाकीतारीख / : 13/11/2019 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member):- 1. Aforesaid appeal by assessee for Assessment Year [AY] 2014-15 contest the order of Ld. Commissioner of Income-Tax (Appeals)-4, Mumbai, 2 Biryas Finance & Investment P.Ltd. Assessment Year-2014-15 [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-4/e-filing/102/ITO- 2(1)(1)/2016-17dated 15/03/2018 on following grounds of appeal:-

1. First Ground of Appeal relates to considering the surplus on sale of property under section 50. On the facts and in the circumstances of the case and in law, the learned CIT (A)-4 while passing the Appellate Order did not appreciate the fact that the assessee has not availed of depreciation in any of the years including the year of assessment which is prerequisite condition for considering the block of assets as depreciable and hence cannot be considered u/s. 50.

2. Second Ground of Appeal relates to the Disallowance of expenses relating to the property incurred to make the same eligible for sale. Without prejudice to the first ground on the facts and in the circumstances of the case and in law, the learned CIT (Appeals) -4 while passing the Appellate Order did not allow the expenses incurred for renovation, clearance of liability against the property tax and legal expenses preparing the documents for sale.

3. Third Ground of appeal relates to the Disallowance of Administrative Expenses incurred against the income On the facts and in the circumstances of the case and in law, the learned CIT (A) - 4 while passing the Appellate Order did not consider the genuine operating expenses to be allowed against the income. The Appellant Company, therefore, prays the order of the learned assessing officer / CIT (Appeals) be amended to allow deductions / reliefs claimed above. The Appellant Company also craves leave to add to, alter and / or amend any of the foregoing grounds, if and when necessary.”

We have heard and considered the rival submissions and perused relevant material on record including documents placed in the paper-book. 2.1 Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in investment in real estate was assessed for year under consideration u/s 143(3) on 27/12/2016 wherein the income of the assessee was determined at Rs.90.53 Lacs as against returned income of Rs.14.30 Lacs e-filed by the assessee on 30/09/2014. 2.2 During assessment proceedings, it transpired that the assessee sold one immovable property for Rs.170 Lacs on 30/10/2013. The assessee 3 Biryas Finance & Investment P.Ltd. Assessment Year-2014-15 reflected gain on sale for Rs.37.33 Lacs in the Profit & Loss Account. The perusal of block of asset in the Balance Sheet revealed that the assessee was having only one property under the block Buildings. The said asset was depreciable asset and therefore, since the entire block was exhausted, the provisions of Sec. 50 were found to be applicable to the facts of the case. Accordingly, the gain on sale of premises, in the opinion of Ld. AO, was to be taxed as Short-term Capital Gains (STCG) and expenses of Rs.70.40 Lacs claimed against sale of the property were to be disallowed. The assessee furnished working of short-term capital gain for Rs.0.33 Lacs, which has already been extracted at para 6.2 of the quantum assessment order. The cost of the property, net of depreciation, was shown by the assessee to be Rs.99.25 Lacs. The assessee claimed direct expenditure & indirect expenditure of Rs.33.41 Lacs & Rs.36.99 Lacs respectively against the sale of the property and submitted that the administrative expenses were to be capitalized with the property sold and the same were allowable expenditure. However, rejecting the same, Ld. AO opined that the property was held not as an investment but as a fixed-asset against which administrative expenditure, directors’ / employee’s remuneration aggregating to Rs.36.99 Lacs could not be allowed since these expenditures were not incurred wholly and exclusively in connection with transfer of asset. Regarding direct expenditure of Rs.33.41 Lacs, the assessee could not submit conclusive evidence to support his claim and accordingly, the same were also not allowed to the assessee. The plea that the efforts of directors to sell the property were compensated through a 4 Biryas Finance & Investment P.Ltd. Assessment Year-2014-15 remuneration of Rs.34.34 Lacs was also not found to be acceptable since there was practically no activity in the company except leasing-out of property. Finally, the short-term capital gains were computed at Rs.75.98 Lacs, being difference in sale value of Rs.170 Lacs and Written Down Value of the premises for Rs.94.01 Lacs as on 01/04/2013. 2.3 The assessee, in the alternative, contended that the expenses disallowed in working of STCG may be allowed as business loss which was also rejected in view of the fact that the assessee did not carry out any business activity during the year but earned only the rental income which was not the main business activity of the assessee. Finally, the income was determined at Rs.90.53 Lacs which,inter-alia, comprised-off of Income from house property for Rs.15.69 Lacs and Short-term capital gains for Rs.75.98 Lacs. The business loss of Rs.1.13 Lacs was allowed to be set-off against the same.

is accordingly dismissed.

8. Ground No. 3: This ground relates to disallowance of expenses incurred on the property and cost of improvement thereof. 8.1. The assessee has incurred direct expenses of Rs.33,41,029/- and has claimed the same as cost of improvement towards property sold by it, which was the issue under consideration in the ground no. 2of this appeal. The AO has applied provision of Section 50 of the Act and accordingly has disallowed the assessee's claim of direct expenses of Rs.33,41,029/-. 8.2.The assessee has submitted that the property was on lease for quite some time and tenant had to be vacated. There was heavy damage and brokerage to the property which was to be repaired and made suitable before it could be sold. It was further submitted that there was certain expenses like property tax of earlier years, legal expenses, BEST deposits and brokerage incurred for the property and these expenses totaling to Rs.33,41,029/- were claimed against the sale proceed. The assessee has further relied upon certain decision to contend that incidental expenditure is required to be allowed while working out the capital gain.

6 Biryas Finance & Investment P.Ltd. Assessment Year-2014-15 8.3. I have carefully considered the facts of the case, oral contentions and written submission of the assessee, discussion of the AO in the assessment order and material available on record. While adjudicating the ground of appeal no. 2 above, the application of Section 50 have been found to be justifiable and has been upheld. Once the provision of Section 50 are found to be applicable, there is no reason to work outthe computation as per the provision of Section 48 of the Act and thereby allowing the incidental expenses, which are incurred in relation to the property transferred. It is further noted here that the assessee has claimed property tax of earlier years as incidental expenses at Rs.10,45,779/-. Without prejudice to the finding that in the case of the assessee, provisions of Section 50 of the Act are applicable in respect of such expenses it is stated that property tax of earlier years would be allowable in the earlier years either as business expenses, if business was run by the assessee or income from house property, if the resultant income has been shown as house property by the assessee. Accordingly, such expenses claimed to be incidental, cost of improvement of the property for working out the capital gain u/s.48 is not found to be justifiable. The assessee has claimed repair and renovation expenses of Rs.14,37,500/-. AO in theassessment order has clearly observed that at para 6.4 that assessee has not submitted conclusive evidence in support of such claim of expenditure. The assessee further claimed legal expenses of Rs.5,04,750/- and brokerage of Rs.3,40,000/- without any evidences. The aforesaid factual observations have been just mentioned here for the sake of clarity, however, they do not merit any consideration as the action of the AO in respect of the gains earned from the property sold have been held to be taxableu/s.50 of the Act. This ground of appeal is accordingly dismissed.

9. Ground No. 4.: The assessee by this ground contends that it is carrying out business activity of preparing the property to be suitable for disposal by making suitable modification etc. 9.1 The Assessing Officer in the assessment order has mentioned that assesseehas claimed Employee Benefit Expenses of Rs.34,34,852/-, administrative expenses of Rs.2,64,676/- and direct expenses relating to the sale of property at Rs.33,41,029/-. All these expenses have been debited against the sale proceeds of Rs.1.7 crore of a property sold by the assesses during the year under consideration. The AO in the assessment order has observed that there is no conclusive evidence submitted for thedirect expenses of Rs.33,41,029/- and the Employee Benefit Expenses, AdminOverheads are also not fully allowable as the assessee during the year has notcarried out any business activity and has only lease rental income under the head"revenue". Portion of such income has been shown as rental income under the headincome from house property which were incidental to the business income of the assessee. The assessee has also shown sale of premises under the head "income in profit and loss account" and from the whole facts it was evident that during the year assessee has not carried out any business activity, however, assessee was claiming expenses as Employee Benefit Expenses of Rs.34,34,852/- and other expenses of Rs.5,11,261/- despite no business activity. Taking a fair view, the AO observed that certain expenses which are mandatory for running of the business that is legal and 7 Biryas Finance & Investment P.Ltd. Assessment Year-2014-15 professional fee of Rs.57,500/- and payment to auditors of Rs.56,180/- totaling to Rs.1,13,680/- was allowed and the remaining expenses of Rs.38,32,433/- debited to P/L account disallowed. 9.2 The assessee contended that it was running the business and was entitled to claim the full loss as disclosed in the P&L account, and that the directors remuneration have been duly disclosed in the return of income of the directors and have been offered to tax. 9.3 I have carefully considered the facts of the case, oral contentions and written submission of the assessee, discussion of the AO in the assessment order and material available on record. It is seen from the appeal that such ground is limited to the aspect that the appellant was carrying on business activity during the year. Nothing more has been said or stated or raised as a point or a issue in the grounds of appeal. In this regard it is stated that even the Assessing Officer has observed that the assessee was the maintaining entity as a business entity and for that purposeexpenses like "legal and professional fee" and "auditors fee" have been allowed by the AO. There was hardly any activity done by the assessee except the sale of the property and in such view of the matter there cannot be any expenses like Employee Benefit Expenses that to the tune of Rs.34,34,852/-. The contention of the assessee that the directors remuneration have been offered to tax in the hands of the directors does not lend any support to the cause of the assessee, as for deduction of such expenses in the hands of the assessee, the same should be wholly and exclusively incurred for the purpose of business carried out by the assessee and not for any other reason. There is no specific premise given u/s.37 of the Act, that when the payment is made to the directors, may not be even for the purposes of business and are not incurred wholly and exclusively for the purposes of business, still the same has to be allowed. The AO has allowed an amount of Rs.1,13,680/- out of the other expenses claimed at Rs.5,11,261/- for keeping the status afloat of the business entity of the appellant. Accordingly, no interference is considered, called for in the action of the AO, and therefore, the ground raised is accordingly dismissed.

Aggrieved, the assessee is under appeal before us.