DCIT CEN CIR 8(4), MUMBAI vs. PHOENIX MILLS LTD, MUMBAI

आदेश/O R D E R

PER: R.C. SHARMA, AM: These are the appeals filed by the revenue against the separate orders of CIT(A)-50, Mumbai dated 26/03/2018 for the A.Ys. 2011-12 to 2014-15 in the matter of order passed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act).

“1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting he addition on account of Annual Letable Value (ALV) U/s 23(1)(c) of the Act in respect of vacant properties during the year at Rs. 28,84,560/- by relying the decision of Hon. ITAT in the assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11, without appreciating the fact that the Department has not accepted the decision of the Hon. ITAT in the assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11 and appeal filed before the Hon. Bombay High Court which is pending for adjudication. 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition Rs. 6,16,626/- on account of 1/5th of capitalized interest expenditure by relying the decision of Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11 without appreciating the fact that the department has not accepted the decision of Hon’ble ITAT in the assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11 and appeal filed before the Hon’ble Bombay High Court which is pending for adjudication and also the said portion of capitalized interest had no relation with the project undertaken by the assessee.

3 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

4 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

filed before the Hon’ble Bombay High Court which is pending for adjudication. 8. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition made by the A.O. of Rs. 2,86,05,652/- on account of allocation of Repairs and Maintenance expenses to the income from house property by relying the decision of Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11, without appreciating the fact that the department has not accepted the decision of the Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and 2010-11 and appeal filed before the Hon’ble Bombay High Court which is pending for adjudication. 9. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition made by the A.O. of Rs. 4,53,91,128/- on account of allocation of advertisement and sales promotion expenses to the income from house property by relying the decision of Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11, without appreciating the fact that the department has not accepted the decision of the Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and 2010-11 and appeal filed before the Hon’ble Bombay High Court which is pending for adjudication. 10. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition made by the A.O. of Rs. 2,35,56,645/- on account of allocation of additional sum out of Miscellaneous expenses to the income from house property by relying the decision of Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11, without appreciating the fact that the department has not accepted the decision of the Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and 2010-11 and appeal filed before the Hon’ble Bombay High Court which is pending for adjudication. 11. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition made by the A.O. of Rs. 2,17,06,307/- on account of allocation of security charges to the income from house property by relying the decision of Hon’ble ITAT in assessee’s own case for A.Y. 2009-10 and A.Y. 2010-11, without appreciating the fact that the department has not accepted the decision of the Hon’ble ITAT in assessee’s own case for A.Y. 2009- 10 and 2010-11 and appeal filed before the Hon’ble Bombay High Court which is pending for adjudication. 12. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.

5 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

5.1 Rival contentions have been heard and record perused. Facts in brief are that the assessee company is engaged in the business of Rental and Services. For the relevant assessment year under consideration, the assessee has filed the return of income on 29/09/2012 declaring total income of Rs. 1,08,62,86,443/-. Subsequently, the assessee filed its revised return of income on 31/10/2014 declaring the same income of Rs. 1,08,62,86,443/-. The case was selected for scrutiny and he assessment order under Section 143(3) of the Act was passed on 30/03/2015. The income of the assessee was assessed at Rs. 1,35,73,48,260/-, after making the following additions:-

6 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

(i) Deemed Rental in case of vacant premises U/s 23(1)(c) of the Act of Rs. 28,84,560/-.

(ii) Disallowance of capitalized Interest Expenditure of Rs. 6,16,626/-.

(iii) Disallowance U/s 14A of the Act of Rs. 2,42,60,860/-.

(iv) Disallowance U/s 36 of the Act of Rs. 1,00,31,232/-.

(v) Addition on account of foreign raveling expenses of Rs. 8,18,965/-.

(vi) Addition on account of increase in share capital of Rs. 1,08,600/-.

(vii) Disallowance of Legal and Professional expenses of Rs. 5,06,54,533/-.

(viii) Disallowance of Salary/Directors Remuneration of Rs. 5,37,61,450/-.

(ix) Disallowance of Repairs and Maintenance of Rs. 2,86,05,652/-.

(x) Disallowance of Advertisement/sales promotion expenses of Rs. 5,49,21,754/-.

(xi) Disallowance of other miscellaneous expenses of Rs. 2,35,56,645/-.

(xii) Disallowance of Security charges of Rs.2,17,06,307/-.

7 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

following the order of the Tribunal in assessee’s own case for the A.Y. 2009-10 and 2010-11. 7. We had carefully gone through the orders of the authorities below and found from record that that the assessee is the owner of the commercial premises situated at Lower Parel (Phoenix Mills Compound) and the said premises are let out to various tenants. The said premises are a combined complex / structure of various buildings which are separately identified for the business purposes. The areas are further divided into separate units which are 'provided on lease to various tenants. During the course of assessment proceedings, the learned AO sought the details of the premises which were vacant during the year. There was only one property ie. Boulevard, with a built up area of 2,020 sq ft that was vacant during the year under consideration. Subsequently, the learned AO proceeded to compute the annual letting value of the above 2,020 square feet by applying an ad hoc rental value /the value mentioned in the rental agreement of Rs. 119 thereby adding Rs. 28,84,560 to the total income of the assessee. We had gone through the orders of the Tribunal in assessee’s own case and found that the issue has been decided by the Tribunal in assessee’s own case for the A.Y. 2009-10 and 2010-11 under similar facts and circumstances as under: “43. We have considered rival contentions and gone through the orders of the authorities below. With respect to the first property, Boulevard we found that this premise was used by the assessee for its own business purpose as a godown for storing records. Charging section 22 leaves out the property which assessee occupies for the purposes of any business out of the ambit for chargeability purposes and therefore, no additions can be made on account of the fact that the properties were used by the

8 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

assessee for its own business purposes. Two of the above mentioned properties i.e. Grand Galleria and Sky Zone 1 could not be put on rent for genuine reasons such as unavailability of customers and some repair work was also going on in these properties. Considering the fact that the appellant is into the business of running commercial premises i.e. a mall, units of which are provided on lease to various tenants, it is obvious that the appellant would have taken sufficient efforts to let out the property. No reasonable business person would not want to let out his premises at the loss of revenue if any opportunity exists. Hence, AO's assumption that the properties were not intended to be let out is an erroneous one.

9 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

of the Tribunal in assessee’s own for the A.Y. 2009-10 and 2010-11, which has also been relied by the ld. CIT(A) while deleting the addition, we do not find any reason to interfere in the order of the ld. CIT(A) in deleting the said addition. Accordingly, we uphold the same.

10 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

the A.O. is of the view that the portion of the interest expenses capitalized by the assessee for the A.Y.'s 2006-07,2007-08,2008-09 & 2009-10 was incurred in respect of the above mentioned amount of purchases withdrawn by the assessee company. Hence, the said portion of capitalized interest expenditure is disallowed as having no relation with the project undertaken by the assessee. The amount of capitalized interest expenditure year- wise is given below:-

Assessment Year Amount 2006-07 2,51,702 2007-08 10,23,213 2008-09 12,40,870 2009-10 5,67,346 Total 30,83,131

Accordingly, the Assessing Officer had disallowed 1/5!h of the said 9.1 expenditure i.e. Rs. 6,16,626 and had been duly reduced from the amount of interest claimed by the assessee as a deduction while computing its Income From House Property for the captioned assessment year. During the re-opening proceeding, it was submitted that the assessee had sufficient interest free funds available with it and the same could have been said to utilized for the said purposes. Further, reliance was placed on the judgment of Hon'ble High Court, Bombay in the case of Commissioner Of Income Tax Vs Reliance Utilities & Power Ltd. wherein the Hon'ble High Court, Bombay held that if there are funds available both interest free and over draft and/or loans taken, then a presumption would arise that

11 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments.

9.2. By the impugned order CIT(A) deleted the disallowance by following the order of the Tribunal in assessee’s own case for A.Y.2009-10 and 2010-11. Now revenue is in further appeal before us.

12 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

the order of the ld. CIT(A) in deleting the said addition. Accordingly, we uphold the same.

12.2. From the record we found that the assessee company had voluntarily made disallowance of Rs. 40,85,228/- as amount related to earning of exempt income. The same is also being considered by the tax auditor as reasonable. The assessee company has incurred remaining expenditure only to the extent as is required for carrying on its business and profession and there would have been no change in the total

13 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

expenditure had the assessee company not undertaken the investing activities in the shares from which the dividends have been received.

12.3. However, the Ld AO did not consider the assessee submission and made an additional disallowance of Rs 2,42,60,860 u/s 14A r.w.r 8D. It is hereby important to note that while making the said disallowance, AO had not provided any satisfaction note as to why the disallowance made by the assessee is not correct. Thus, when the AO had not provided any justification or satisfaction on non-acceptance of disallowance made by the assessee, the disallowance u/s 14A r.w.r 8D should be treated as bad in law.

12.4. In the case of Godrej and Boyce Mfg.Co.Ltd Vs Dy.CIT [2010] 328 ITR 81 (Bom): 43 DTR 177 (Bom) discussed the same analogy. The relevant portion is reproduced as under:

"Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form pan of the total income is correct. The Assessing Officer must, in the first instance determine whether the claim of the assessee in that regard is correct and the determination must be made having regard. to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In

14 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act." 12.5. Same analogy has been drawn by Hon'ble Mumbai TTAT in the assessee's own case in A.Y. 2008-09 and allowed the appeal of the assessee on the ground that the AO had not made any satisfaction note as to why the disallowance made by the assessee is not satisfactory and therefore deleted the additions.

“Before the Assessing Officer, in response to the show cause notice, the assessee contended that firstly, no disallowance on account of interest can be made as the assessee had huge surplus funds for making the investment; secondly, there is no direct expenditure relating to earning of the exempt income; and lastly, on the issue of indirect expenses, the assessee has given the detailed break-up of operating expenses, which were in the nature of administrative expenses, from which it was pointed out that none of the expenses debited and claim can be said to be attributable or have any direct relation with the earning of exempt income. Thus, no disallowance over and above attributed by the assessee can be made. Ld. Assessing Officer though accepted that no expenditure is to be disallowable under clause (i) and (ii) of Rule8D(2), however, has proceeded to make disallowance on account of indirect expenditure by applying the formula given in clause (Hi) of Rule 8D(2), which is 0.5% of the average value of investment. Before resorting to compute the disallowance under section 14Aread with Rule 8D(2), nowhere the Assessing Officer has recorded his 'satisfaction' or expressed in any terms that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the exempt

15 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

income, having regard to the accounts of the assessee. The disallowance u/s.14A(l) can be made only when the assessee while computing the total income, claims any expenditure which is or can be said to be attributable for earning of the exempt income i.e. income which do not form part of the total income. Such a disallowance can be made/quantified in accordance with the provisions of sub-section(2) of section 14A. In other words, disallowance u/s 14A(1) can only be triggered, once the conditions laid down subsection (2) are satisfied. To work out the disallowance under Rule 8D(2) and for its quantification, the Assessing Officer has to first examine the accounts of the assessee and also correctness of the claim and thereafter, if having regard to such accounts and claim of the assessee, the Assessing Officer is not satisfied either with the correctness of the claim made by the assessee or by the claim that no expenditure at all has been incurred, then only he can resort to Rule 8D. Thus, the 'satisfaction' of the Assessing Officer is a mandatory requirement to trigger the computation mechanism of Rule 8D. Here in this case, once the assessee has given all the detail of its accounts' nature of expenses incurred: explained that the expenses claimed has direct relation with the earning of business income and also why such an expenditure cannot be held to be attributable for earning of exempt income, then the Assessing Officer was required under the law to examine the correctness of the claim and record his satisfaction that he is not satisfied with such a claim bv setting out the reasons in the assessment order. However, in the present case, such a mandatory requirement asenshrined in sub-section (2) of section 14A and rule 8D(1) has notbeen complied with. Once that is so, he cannot proceed to enhancethe disallowance u/s 14A over and above offered by the assessee. Accordingly, the disallowance made by the Assessing Officer and partly sustained by the CIT(A) is deleted on this preliminary ground and thus, around no. 2 raised by the assessee is treated as allowed.

12.6. We also observe that there is no requirement to make disallowance u/s 14A r.w.rSD because rule 8D provides disallowance only on the basis of three grounds. We analyze the provisions as laid down in Rule 8D, the disallowance formula as laid down requires three adjustments :

16 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

12.8. In relation to the same, we observe that the assessee has huge own funds which is evident on perusal of the assessee's financials attached in

17 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

the Paper Book I at page no. 03 to 31. It is clear that the owned funds of the assessee are sufficient enough, and hence the assessee does not have to procure any additional borrowed funds for making the Investments during the current year under consideration. The following table makes it clear that the assessee is in possession of sufficient owned funds, which are being deployed for making investments: Particulars A.Y. 2012-13 Share Capital 28,96,90,890 Reserves & Surplus 16,43,11,80,191 Total Own Funds available 16,72,08,71,081 Investments 809,76,46,378

12.9. From the above table, it can be safely depicted that the owned funds as of 31.03.2012 are almost 2 times of the Investments as on 31.03.2012. We also found that all the investments on which dividend was earned were made from the assessee's own internal accruals and not from borrowings. Consequently no finance cost is incurred for earning of dividend income. Dividend income accrues as the return on investments made from the surplus funds available and as such there is no additional expenditure incurred to earn the same.

18 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

12.10. At this juncture it was brought to our attention that the assessee has made its major investment in A.Y. 2008-09. In assessment year 2008- 09 there was an increase in the share capital of the assessee company. The rise in shareholders' funds is on account of Qualified Institutional Placements (QIP) of Rs. 980 crores and Preferential Allotment of Rs. 317.72 crores received by the assessee during the previous year.

19 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

claim of the assessee in respect of expenditure incurred in relation to exempt income having regard to the accounts of the assessee. 119. As per our considered view, the disallowance u/s.14A(1) can be made only when the assessee while computing the total income, claims any expenditure which is or can be said to be attributable for earning of the exempt income i.e. income which do not form part of the total income. Such a disallowance can be made/quantified in accordance with the provisions of sub- section (2) of section 14A. In other words, disallowance u/s 14A(l) can only be triggered, once the conditions laid down under sub-section (2) are satisfied. To work out the disallowance under Rule 8D(2) and for its. quantification, the Assessing Officer has to first examine the accounts of the assessee and also correctness of the claim and thereafter, if having regard to such accounts and claim of the assessee, the Assessing Officer is not satisfied either with the. correctness of the claim made by the assessee or by the claim that no expenditure at all has been incurred, then only he can resort to Rule 8D. Thus, the 'satisfaction' of the Assessing Officer is a mandatory requirement to trigger the computation mechanism of Rule 8 D. 120. However, in the instant case before us assessee has given complete break-up and detailed of the expenditure, details of its account, nature of expenditure so incurred so as to indicate that expenses were incurred had direct relation with earning of business income and given reasoning as to why such expenditure cannot be held to be attributable for earning of exempt income. Under these circumstances, the AO is required under law to examine the correctness of the claim and record his satisfaction to the effect that he is not satisfied with such claim by setting out reasons in the assessment order. Making disallowance without adhering to the mandatory requirement

20 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

as contained in subsection 2 of Section 14A and Rule 8D(1) will not empower the AO to make any disallowance. Under these circumstances AO is not empowered to enhance the disallowance under Section 14A over and above the amount offered by assessee. We accordingly direct the AO to restrict the disallowance to the tune of Rs. 6,25,294/-. We also found that issue is also covered by the decision of the Tribunal in assessee’s own case for the assessment year 2008-2009 vide order dated 19/8/2015.”

14.1. We also observe that issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd., supra, HDFC Bank Ltd., supra, the decision of Gujarat High Court in case of Suzon Energy Ltd., supra. Furthermore, Hon’ble Mumbai ITAT on Section 14A, has held that no disallowance u/s 14A on account of interest expenditure is

21 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

warranted, if the assessee is having sufficient own funds to cover-up investments made in shares and securities:

i. Shoppers Stop Ltd vs ACIT (ITA No. 1448 and 4475/Mum/2010) ii. Weizmann Ltd vs Addl. CIT in. Sahara India Mass Communication Ltd vs ACIT iv. Jacqart Financial Services Ltd vs DCIT v. ACIT vs K.Raheja Corp. Pvt Ltd vi. The CIT, Trichur V/s The Catholic Syrian Bank Ltd., Trichur (Kerala High Court) 14.2. Thus, all the above-mentioned decisions fully support the contention of the assessee. Accordingly, it can be held that if interest free funds available to assessee are sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available and disallowance of interest cannot be made under that pretext.

14.3. It is also pertinent to mention that during the year under consideration the assessee had earned interest income more than its interest expenditure and therefore there is no interest expenditure is being disallowed as per rule 8D(ii) of the Income Tax Rule. For this purpose, reliance can be placed on the decision of Bombay ITAT in the case of Trade Apartment Ltd, wherein the ITAT held that the assessee had earned exempt income in the form of dividend. The assessee had no net interest expenditure in the Profit & Loss Account upon netting off of

22 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

interest expenditure and interest income. Hence, it had made no disallowance in respect of interest expenditure under section 14A. 14.4. Further no disallowance can be made in respect of investment which had not earned any exempt income during the year under consideration. 14.4. We further observed that the disallowance u/s 14A would be restricted to Rs 1,82,28,334 (As claimed exempt during the current year). This contention of the assessee is also supported by the logical reasoning given by ITAT (MUM) in the case of M/s. Daga Global Chemicals Pvt. Ltd. Vs.Asst. Commissioner Income Tax -9(1).

"The facts, in brief, are that the assessee. is a limited company, engaged in trading of bulk and fine, chemicals, solvent and pharmaceutical raw materials declared its http://www.itatonline.org4 M/s Daga Global Chemicals Pvt. Ltd, . income at Rs.74,40,000/- on 26/09/2009. The assessee credited dividend income of Rs.1,82,262/- in its profit and loss account. The Assessing Officer while framing the assessment invoke section 14A r.w. Rule. 8D by contending that assessee claimed various expenses which are related to exempt income in its profit & loss account and disallowed Rs.14,58,412/-. On appeal, before the Id. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The. totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs.1,82,362/- as dividend income, therefore, there is no question of disallowance of Rs.14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the Id. counsel for the assessee that on identical fact in earlier years, no disallowance was made, In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income. At best, if any disallowance could be made that can be restricted to Rs. 1,485/- which were claimed

23 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

as denial charges. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the. claim of the assessee. The appeal of the assessee is therefore, allowed. " 14.5. Further, the Hon'ble Delhi High Court also stated that the disallowance u/s 14A cannot sallow the entire exempt income in the case of Joint Investment Pvt ltd vs CIT. The relevant portion is as under: 9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim .for attributing Rs.2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CJT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14Aor Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exemrjt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.

14.6. In view of the above judicial pronouncements, we do not find any infirmity in the order of CIT(A) for deleting the disallowance made u/s.14A of the IT Act.

24 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

assessee’s own case for the A.Y. 2009-10 and 2010-11 has deleted the same after having the observation at page 38-45 para 17-20.

15.1. In this regard we found that during the year under consideration, the assessee has incurred interest and finance charges of Rs.16,54,48,080 during the year under consideration. The break-up of the said expenditure is as under:- Particulars Amount Interest on Term Loans 11,75,77,309 Interest on O/D 1,33,72,783 Interest on Other Loans 1,15,60,488 Processing Charges 2,29,37,500 Total 16,54,48,080

15.2. In relation to the same, we observe that the assessee submitted a detailed submission during the assessment proceedings regarding the nature of each & every interest expenditure mentioned above. Further out of the above interest, the assessee had partially used the term loan in relation to the house property and accordingly suo-moto disallowed interest expenditure of Rs 1,19,22,618 under the head income from business and profession and claimed the same under the head income from house property in its computation of income.

25 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

15.3. However, the Id. A.O. while passing the assessment order disallowed the interest paid on OD amounting to Rs. 1,33,72,783 as not being attributable to business. Further, out of the same, the leaned A.O. has disallowed an interest expenditure of Rs. 33,41,551 while computing disallowance U/S.14A r.w.r. 8D. 15.4. In this regard we observe that interest expenditure of Rs.1,00,31,232 (i.e. Rs. 1,33,72,783 minus Rs. 33,41,551), the Id. A.O. observed that the assessee is having huge public funds at its disposal for utilization of the same for the purpose of business. Solely relying on the said aspect, the AO proceeds to conclude that the entire interest is to be treated as for the purposes of other than business such as financing to other subsidiaries, investments etc. and proceeds to disallow the said expenses to the tune of Rs. 1,00,31,232 u/s 36. The relevant para of the comments made by the AO is as under :- "...... Therefore the balance amount of interest Rs. 1,00,31,232 is also being disallowed u/s 36 as the same has not been proved to have been utilized for the purpose of business." 15.5. From the record we found that the interest on O/D is paid on account for utilizing overdraft facility. This facility was used by the assessee in order to quick finance for its short term requirement. The business model of the assessee is such that it requires liquid cash in order to finance its current operations, which is obtained by utilizing its overdraft facility.

26 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

15.6. We also observe that in respect of financing activities, assessee has earned interest income of approx. Rs. 38.70 crores from its financing activities i.e. earned by investing in FD's and various ICDs placed with the various entities. Also it can be evident from the Profit and Loss account that for the year under consideration the assessee had earned interest income (shown under the head 'Other Income') from the said investments which is greater than interest expenditure incurred by it. Considering the above aspect, the learned AO has proceeded to disallow interest paid contending the financing aspect without even considering the major income earned by the assessee from the same activity. Further, it is pertinent to note that in the assessee's own case for A.Y, 2009-10 & A.Y. 2010-11, the Hon'ble CIT(A) has held the said ground in the favour of the assessee.

27 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

have not been controverted by DR by bringing any positive materials on record. Under these circumstances merely because assessee was having substantial own funds, will not disentitle him from claiming deduction of interest on the funds borrowed and invested for the purposes of his business. From the record, we also found that interest was paid on overdraft facility utilities by the company to maintain liquidity and there is no provision in the Act which prohibits borrowing of the funds for the purpose of business and paying interest on the same. Accordingly we uphold CIT(A)’s order deleting disallowance of interest.”

28 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

order of the Tribunal in assessee’s own case for the A.Y. 2009- 10 and 2010-11 has deleted the same after having the observation at page 45-54 para 21-24.

18.1. In this regard we observe that during the year, the assessee had debited the sum of Rs. 54,56,978 as Traveling expense. Out of the above, the sum of Rs.8,18,965 was disallowed by the Ld, A.O. stating that the same has been incurred for earning rental income and added the same as income of the assessee. In respect of the same, we observe that the company is in the business of Development of property, Rental & ancillary services & trading in cloth during the year under reference. The foreign trips have been undertaken by the Directors of the company. The objectives of these travels are mainly for exploring various possibilities for a foreign collaboration and tie up in the existing line of business which the assessee is in presently and to study the retail mall culture and pattern of the shops and also for understanding needs of the customers etc., The details of foreign travelling expenditure incurred along with the person undertaking the travel his designation and the purpose of travel has been furnished before lower authorities.

29 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

own case for the A.Y. 2009-10 and 2010-11, the Tribunal has deleted the similar addition after having observation as under: “126. We have considered rival contentions and found that expenses were genuinely incurred by the assessee on account of foreign travels for enhancing its business. The issue under consideration is also covered by the decision of the Tribunal as considered by CIT(A) in its order. Accordingly, we do not find any reason to interfere in the order of CIT(A) deleting disallowance on account of foreign travelling expenses.”

30 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

2009-10 and 2010-11 has restricted the disallowance after having the observation at page 64-70 para 30-33. 21.1. In this regard we observe that assessee had claimed a sum of Rs. 8,14,10,648 as Legal and Professional fees as being incurred for business purposes. Out of the above, AO disallowed expenses to the tune of Rs.3,75,000 as directly related to the house property and balance of Rs. 8,10,35,648 was allocated between the head House Property and other income in the above mentioned ratio of 62.0462%. Hence, the total disallowance made Rs.5,06,54,533 towards legal and professional expenditure. From the record we found that the assessee has paid the sum of Rs 3,75,000 as Consultancy charges to Jones Lang Lasalle Meghraj Pro Consultants Pvt Ltd. The said party is known for its expertise in property consultancy matters. The parties have extended their services towards the development of the property. From the record we found that genuineness of incurring such expenses is not in doubt; These are all legitimate business expenses incurred by the assessee for various business purposes; No such expenses were disallowed by the Id AO in any of the preceding years starting from AY 1997-98 onwards till the end of the regular assessment for the A.Y. 2008-09. Thus, the said stand is the deviation from the accepted stand adopted by the department in earlier years; There are no direct nexus between those expenditure and rental income of the assessee. Further, there would have been no change in the

31 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

legal expenditure if the assessee company did not earn the income from house property. Accordingly, it is contented that the entire expense is allowable as business expenditure. As per the breakup provided above it is submitted that the expenses specifically not related to rental income as well as income mandatory for running of business and hence it is clearly reflect the rationale for not allocating the expenses to earning of income from the house property. The 'nature' column clearly establishes the purpose for the incurrence of the expense and it is self evident that the same doesn't relate to the earning of income from house property. Thus it is stated that the expenses cannot be apportioned on any basis as it is in no way related to earning rental income. Only on the basis of the. rationale that the income of the assessee is taxed in two heads of income, there is no justification in the AO's stand to apportion the expenses between income from house property and income from business and profession. It is vehemently submitted that there is no tangible evidence to show that the above expenses were specifically incurred for earning income from house property.

32 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

“64. We have considered the rival contentions and found that disallowance of legal and professional expenses of Rs. 2,36,30,828/-, was made by AO out of a sum of Rs. 4,28,91,270/- claimed by assessee as Legal and Professional fees being incurred for business purposes.

33 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

34 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

No. 59/68 of 2008, legal fees for appearances on various law matters, legal fees for attending court matter, professional fee paid for appearing before the Commissioner of Central Excise, legal charges for various conference, professional charges for attending to clients representatives for various legal issues, payment made to Chartered Accountants, professional fees in connection with attending to stamp duty adjudication matters, which are essentially in the nature of services rendered for earning income offered under the head business income.

35 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

towards House Property Income. Accordingly, we direct the Assessing Officer to allocate the professional expenses relating to M/s Jones Lang Lasalle Meghrj Pro Consultants Pvt. Ltd in the same ratio. Accordingly, we direct the Assessing Officer to disallow an amount of Ps. 44,82,146/(38.16% of Rs. 1,17,45,666) out of said expenses relating to Jones Lang Lasalle. Thus we allow balance expenditure of Rs. 72,63,520 out of the total expenditure of Rs. 1,17,45,666 paid to M/s Jones Lang. The same is as per the consistent view followed by the Mumbai ITAT & CIT(A) in the appellants own case for the previous years.”

36 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

24.1. In this regard we observe that the Ld. A.O. had bifurcated and disallowed certain expenses claimed by me assessee as being incurred in respect of the business income by treating the same as having being incurred towards the earning of rental income. The above allocation was done on revenue basis i.e. the revenue of the company during the year under consideration as determined by AO is Rs. 243.77 crores. The same comprised of two components namely "Rental Income" & other heads. The revenue from the rentals had been considered under the income from house property. The revenue earned from rental income was at Rs 151.25 crores and the balance revenue is Rs.92.52 crore from the heads other than rental income. Thus, the percentage of the rental Income out of the total income is 62.0462%. The AO has considered various heads of expenses and allocated 62.0462% of the same as being related to income from house property and disallowed the same. Further the AO has applied ratio of 90:10 (i.e disallowed 90%) in allocation of repairs and maintenance expenses. 24.2. From the record we found that The assessee, being a flagship company of Phoenix Group and also listed on stock exchanges, is primarily engaged in the following businesses / activities:

37 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

Sr. Particulars Total Business House Other No. .Property Amount (Rs.) Income Income Income (Rs,) (Rs.) including Capital Gain (Rs.) " 1 License Fees 1,51,25,72,494 1,51,25,72,494 and rental income (Income from House Property)

2 Service 38,69,75,346 38,69,75,346 - - Charges (Business Income)

38 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

3 Sublease income 4,83,14,488 4,83,14,488 (Business Income) 4 Income From 3,28,84,764 3,28,84,764 Events (Business Income) 5 Income from 38,70,54,649 38,70,54,649 Financial Activity 6 Misc Receipts & 3,03,96,738 3,03,96,738 Compensation

7 Other Incomes 2,10,29,049 2,10,29,049 viz. Sale of Investments 8 Dividend Income 1,85,40,858 1,85,40,858 including Foreign Dividend

Total 2,43,77,68,386 88,56,25,985 1,51,25,72,494 3,95,69,907

24.4. The table clearly reflected that the assessee is in various types of business activities. The assessee received the license fees and rent income which is offered for tax under the head Income Form House Property.

24.5. But the moot point is the earning of business income earned as service charges which are earned by the assessee in form of Common Maintenance Charges (CAM). In respect to the same it is submitted that once the premises have been let out, the assessee proceeds to provide

39 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

another aspect of its services which is more important to the lessee and is of significant nature. Accordingly, in addition to the rental activity, the assessee further provides bouquet of additional services and amenities like - Mall maintenance, Electricity for common areas, Security, Parking for the entire mall Once the property has been let out, the assessee needs to provide different series which are of equal importance to providing space on lease. The lessee of the assessee's premises doesn't expect mere commercial space but also expects a full bouquet of services in addition to the space which forms crux of today's mall culture. Accordingly, the assessee agrees to provide a full basket of various services to its tenants under the contractual obligation. At the cost of repetition, it is important to note that as mentioned above these services are integral part of assessees business and accordingly the same are rendered on a cost plus basis i.e. the assessee clearly earns profit in undertaking the said activity. The income from the said activity is termed as "Service charges" and is offered under the head "Income from Business". It is to be noted that the above services are contractual obligation on the part of the assessee and a sample lease agreement is submitted at page no, 253 to 289 of the Paper book II-B.

24.6. It is clear from record that the assessee incurs expenditure for all the services mentioned above and recovers the same from the tenants

40 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

based on an agreed rate so as to recover its costs and earn profit on the same; the activities as stated above are treated as business of the assessee and the service charges net of the actual costs is offered as "Income from Business & Profession". Moreover, it also pertinent to note that during the year under consideration, the assessee has organized various promotional events in its premises for which it receives income from events and the same is offered as "Business Income".

24.7. The said facts itself clearly substantiates the fact that allocation of expenses has been arbitrarily and without application of mind. From the record it is established that the assessee's business is a consolidated and interlinked one and hence disallowances made by allocating from one head to another would be completely baseless and without any merit. In this regard reliance can be placed on the following judicial pronouncements:-  56ITR 77 - CIT V/s Indian Bank (SC)  242 ITR 250 - Rajasthan Warehousing Corpn Ltd V/s CIT (SC)  55 ITR 17 - CIT V/s Chugandas& Co. (SC)  32 ITR 688 - United Commercial Bank V/s CIT (SC)  82 ITR 452 - CIT V/s Maharashtra Sugar Mills (SC)

24.8. In the above case laws it is ruled that no allocation can be made in case of a consolidated business. It is imperative to note that the department has never disputed the classification of Service Charges as Business Income in the assessee's case. What the department has contested in past is disallowances of specific expenses incurred for earning

41 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

rental income such as Repairs to Buildings, Brokerage, Commission Expenses for scouting the tenants and also certain portion of unrecovered Miscellaneous Expenses. However, during the year under consideration, the department has totally lost the sight of facts and circumstances of the case and also the accepted stand taken in past and went on to disallow even those expenses incurred for which the assessee has made specific recoveries from the tenants that has been offered to tax under the head Business Income in the form of service charges.Further, on the perusal of the sample agreements between the assessee and M/s. Provogue (India) Limited, it is substantiated that apart from receiving rentals from its tenants the assessee is also in receipt of recovery of expenses which are termed as Service Charges and offered as business income against which the assessee has claimed expenses as incurred as business expenses. Summarily, the nature of recoveries of expenses made by the assessee from the tenant is as under:

• Common Area Maintenance includes: a. Regular cleaning of the common areas of Courtyard,including the said Mail and elevation of the building outside the Licensed Premises. b. Security Services for the common areas of Courtyard, including the said Mall (not for the Licensed Premises) c. Lighting of common areas d. Provision of chill water supply into the air-handling unit upto the Licensed Premises e. Regular repairs and maintenance of the said Mall. f. Expenses towards utilities as diesel and other consumables those are required for operating the said Mall, g. Cost of the mall management staff expressly working for the said Mall.

42 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

• Recovery of Electricity Charges, water charges and other utilities; • Marketing and Promotion; • Parking Charges; • Recovery of Air-conditioning usage and equipment cost; • Property taxes. 24.9. From the above, it is clearly evident that the assessee is recovering expenses for the tenant on cost plus basis and accordingly, any disallowance of such expenses is nothing but arbitrary on the part of department

“72. Rival contentions have been heard and record perused. From the record we found that the assessee in its Profit and Loss Account debited Rs.5,48,98,019 as aggregate of staff cost and remuneration to directors. Out of the same, a sum of Rs. 77,16,410 was already disallowed by the assessee as unpaid gratuity and leave encashment. Out of the balance amount of Rs. 4,71,81,609, Ld.AO applied the proportion of 38.16% and accordingly disallowed a sum of Rs. 1,80,04,502 as being proportionately related to income from house property. 73. We have already observed hereinabove the basic structure as well as the income components of the appellant's business. The assessee receives rental income from these stores / shops and offers the same under the head "Income from House Property" and also service charges which is offered under the head of “business income”. In regards to the employee cost of

43 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

Rs. 5,48,98,019 we found that the said expenses consists of salaries paid to administration staff, operational staff, staff cost related to garment business etc. The detailed function wise breakup of the said expenses is as under :- Particulars Amount ACCOUNTS & FINANCE 13,758,739 ADMINISTRATION 685,077 PURCHASE & STORES, RETAIL SHOP AND 1,534,079 SALES LEGAL 2,648,132 MARKETING 2,225,717 OPERATIONS VIZ SUPERVISION, WATCH, 9,174,601 WARDS & PEONS ETC. 74. With regard to the salary of the operational staff of Rs. 91,74,601 out of the total salary expense, we found that the said staff is engaged for the upkeep and maintenance of the mall. The liability to maintain mall arises out of the contractual obligations. In respect of the same, the assessee clearly earns CAM charges which are offered under the business head. Accordingly, how the same can be considered for the purposes of house property. The entire mall management exercise starts after the activity of leasing has ended. However, the AO had allocated the same to income from house property without cogent reasoning.

44 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

assessee has deployed marketing staff who cater to the marketing and promotional activities of clients. Further salary paid to director and their sitting fees is paid under the limits prescribed by the provisions of the Companies act. The same cannot be allocated as per the income of two different heads. On perusal of the assessment order, it is observed that the Ld. AO is of the view that the directors of the company have allocated their time to the earning of house property income., which is not correct.

45 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

46 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

The break of the repair and maintenance is as under: Particular Amount

Repairs – Buildings Repairs & Maintenance - Flats 21,29,814 Repairs & Maintenance - Mall Building 2,68,63,355 SubTotal(A) 2,89,93,169 Repairs - Plant & Machinery Repairs & Maintenance - HVAC 3,385 Repairs & Maintenance -Equipment 5,49,383 Repairs & Maintenance - Equipment 50,17,566 Repairs & Maintenance - Stores and 15,968 Spares Machinery & Equipment Maintenance 79,29,048 Repairs & Maintenance - Electricals 1,66,666 Car Maintenance Expenses 14,56,147 SubTotal(B) 1,51,38,162 Repairs - Others Repairs & Maintenance - Monsoon 57,42,429 Management Repairs & Maintenance - Others 98,93,211 Repairs & Maintenance - Furniture & 18,65,259 Fixture SubTotal (C) 1,75,00,899 Total - Repairs & Maintenance 6,16,32,230

47 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

27.2. From the record we found that genuineness of incurring such expenses is not in doubt; These are all legitimate business expenses incurred by the assessee for various business purposes; No such expenses were disallowed by the Id AO in any of the preceding years starting from AY 1997-98 onwards till the end of the regular assessment for the A.Y. 2008-09. Thus, the said stand is the deviation from the accepted stand already adopted by the department in earlier years; The assessee is also in receipt of maintenance recoveries from the tenants, which have been offered under the head business income and accordingly, disallowances of expenses incurred is totally misplaced and irrational Further it is important to note that the assessee is not responsible for the repairs inside the leased premises i.e. the shop in the mall;

27.3. In view of the above discussion, we do not find any merit for the disallowance so made by the AO.

48 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

70% of total repairs pertaining to the building repairs. Hence, the assessee disallowed the proportions of building repairs amounting to Rs. 9,95,951 being related to let out portions out of the total building repairs of Rs. 14,22,787. It is important to note that the same ratio is already accepted by the department in the earlier years and there was no addition made by the department on accounts of repair and maintenance. Even on the principle of the consistency, how can the assessing officer take a new view to disallow the repair and maintenance at 90%. In view of the above facts and circumstances, we direct the AO to restrict the disallowance of repairs of building to the extent of Rs.9,95,951/- as offered by assessee.”

49 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

restricted the same after having the observation at page 77-81 para 42-45. 30.1. In this regard we observe that the The assessee had debited in the profit & loss account a sum of Rs.8,03,04,034 towards advertisement and sales promotion. Out of the same the assessee has paid the sum of Rs 1,34,27,269 as brokerage and other professional expenditure to Jones Lang Lasalle Meghraj Pro Consultants Pvt. Ltd. The said party is known for their expertise in property consultancy matters. The assessee has received the rental as well as business income from the said property. While passing the assessment order, the Ld.AO applied the proportion of 62.0462% and accordingly further disallowed a sum of Rs.4,14,94,485 as being proportionately related to income from house property. After going through the details of expenditure we observe that genuineness of incurring such expenses is not in doubt; These are all legitimate business expenses incurred by the assessee for various business purposes; No such expenses were disallowed by the Id AO in any of the preceding years starting from AY 1997-98 onwards. Thus, the said stand is the deviation from the accepted stand already adopted by the department in earlier years; The assessee promotes its mall as a lifestyle destination to attract footfalls. The entire expenditure is to promote the mall as a whole. Further, the expenses debited under the head advertisement and sales promotion also include expenses related to the events and signage put up

50 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

at various places, the income from which has been booked as Income from Events and offered to tax under the head "Business Income". The said head also includes various expenses incurred towards various promotional activities undertaken in the common premises of the mall.

30.2. From the record we also observe that the said expenditure were recovered from the tenants and such recoveries were included under the head Service Charges. Thus, the expenditure is an allowable deduction and no part thereof could be apportioned against house property income. Further a brief glimpse at the below mentioned relevant clause, of the lease agreement will help to justify the claim of the assessee that expenses towards marketing and promotion are essential in order to grace the terms of lease agreements:

i. "Marketing and Promotion expenses per square foot of the Licensed Premises shall be paid by the LICENSEE as its contribution towards costs incurred by the LICENSOR towards promoting the Mall for the period commencing from June 1, 2008 to May 31, 2011 @ Rs.5/- (Rupees Five only) per sq. ft on built up area, amounting to Rs.11,865/- (Rupees Eleven Thousand Eight Hundred and Sixty Five only) per month in advance subject to deduction of tax at source. Marketing and Promotional charges shall be payable from June 1, 2008 and shall become due for payment on or before the 7th day of each month." 30.3. From the above an analogy can be drawn that the assessee is responsible for advertising its mall as over and above of rental charges, Rs. 5 per sq feet is collected from the licensee. Further as said above that

51 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

recovery of such charges are offered for tax. under the head business and profession in form of Service charges. Therefore if an income is earned under one head, than how can expenses related to such income be disallowed and allowed under any other head?

“89. Rival contentions have been heard and record perused. From the record we found that during the year under consideration, the assessee had debited in the profit & loss account a sum of Rs. 4,49,51,731 towards advertisement and sales promotion. During the course of the assessment proceedings the assessee submitted the details before the Ld. AO. In the assessment order, the Ld. AO applied the proportion of 38.16% and accordingly disallowed a sum of Rs.1,71,53,581 as being proportionately. By the impugned order the CIT(A) had confirmed the action of AO. It was argued by learned A.R that there is no justification in allocating this expenditure between the service income and rental Income since the promotional expenditure related to the mall is recovered by the assessee and offered for tax under the head of the business income. However, the A.O. ignored the assessee’s submissions and bifurcated the said expenses in ratio of the income earned. The A.O.'s action in bifurcating this expenditure between the business income and rental income is without merit. The bifurcation has

52 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

been done by the A.O. mechanically without appreciating the facts. The assessee is running a composite business, advertisement and promotional activities needs to be taken for advertising its cloth products. The A.O. could not disallow the expenditure on presumption.

53 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

advertisements and promotional activities were recovered from the tenants and such recoveries were included under the head Service Charges. Clauses for recovery of such expenses from the tenants are evident from terms of lease agreement.

54 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

page 12 para 10(e) of his order. By the impugned order, the ld. CIT(A) after considering the order of the Tribunal in assessee’s own case for the A.Y. 2009-10 and 2010-11 has deleted the same after having the observation at page 81-85 para 46-49. 33.1. In this regard we observe that assessee had claimed a sum of Rs.5,66,82,051 in its profit and loss account towards Miscellaneous income. The Ld. AO applied the ratio of 62.0426% and disallowed total amount of Rs.2,35,56,645 as related to income from House Property. It is important to note that assessee has suo moto disallowed amount of Rs. 1,16,12,409 being considered as related to house property. However, the Ld AO made an additional disallowance of Rs. 1,19,44,236. The treatment of the above expenses by the assessee himself and the subsequent disallowance made by the Ld.AO in the assessment order is as follows: Particulars Disallowance Basis Considered by assessee himself as 1,16,12,409 As discussed below pertaining to House Property -Suo motu disallowed by assessee Additional disallowance 1,19,44,236 Considered by AO as pertaining to 2,35,56,645 62.0426% of the House Property total expense In this regards, we observe that the said miscellaneous expenditure is the combination of various nominal expenditure incurred by the assessee during the year under consideration. The direct nexus to find out the said

55 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

expenditure is virtually impossible. However, the assessee has suo moto disallowed Rs. 1,16,12,409.

Further assessee had submitted detailed break up of miscellaneous expenditure as Annexure B . A glance at the break up will make it clear that none of the expenditure relates to earning of house property income and the Ld AO is completely wrong in disallowing the additional expenditure. The expenditure are incurred towards ROC filling fees, printing of annual reports, listing fees etc. the said expenditure are a statutory obligation and needs to be incurred irrespective of the income earned by the assessee. Further, assessee has debited housekeeping charges which are subsequently recovered from the tenants. Hence the same cannot be related to house property income, as recovery from the tenants is offered under income from business and profession. Further the assessee has debited expenses for Books, subscription & periodicals, conveyance, vehicle, secretarial expenses which are solely for business purpose. Moreover this expense cannot be said to have anything to do with earning of any specific income.

56 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

10 and 2010-11, the Tribunal has dealt with the issue after

having observation as under:

“96. We have considered rival contentions and found that assessee had already disallowed a sum of Rs. 53,90,682 as Miscellaneous Expenditure directly related to earning of house property income; however disregarding ,the submission of the assessee disallowing Rs.53,90,682/- the .Ld. AO had further disallowed an additional sum of Rs. 31,38,876 in the ratio of income earned from business and house property. 97. We have considered the rival contentions and found that during the year under consideration, the assessee has debited a sum of Rs.2,23,52,092 in the profit and loss account towards Miscellaneous Expenditure. The treatment of the above expenses by the assessee himself and the subsequent disallowance made by the Ld.A0 in the assessment order is as follows :-

Particulars Disallowance Basis Considered by assessee himself as 53,90,682 As discussed pertaining to House Property – Suo below motu disallowed by assessee Additional disallowance 31,38,876 Considered by AO as pertaining to 85,29,558 38.16% of the House property total expense

57 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

Particulars Amount General and miscellaneous Expenditure 37,62,613

Office Expenditure 53,97,415 Total 91,60,028

58 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

the order of the ld. CIT(A) in deleting the said addition. Accordingly, we uphold the same.

i. "Common Area Maintenance ("CAM") charge for the entire period of 36 (thirty-six) months commencing from June 1, 2008 to May 31, 2011 @ Rs.15/-(Rupees Fifteen only) per sq. ft. on built up area, amounting to Rs.35,595/- (Rupees Thirty Five Thousand Five Hundred and Ninety Five only) per month in advance subject to deduction of tax at source. CAM charges shall be payable from June 1, 2008, and shall become due for payment on or before the 7th day of each month. Common Area Maintenance includes:

59 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

a. Regular cleaning of the common areas of Courtyard, including the said Mall and elevation of the building outside the Licensed Premises. b. Security Services for the common areas of Courtyard,including the said Mall (not for the Licensed Premises) c. Lighting of common areas. d. Provision of chill water supply into the air-handling unit upto the Licensed Premises, charged under III 3 vi. e. Regular repairs and maintenance of the said Mail, f. Expenses towards utilities as diesel and other consumables that are required for operating the said Mall. g. Cost of the mall management staff expressly working for the said Mall." 36.2. Furthermore, the assessee is responsible for providing security in the common areas of the mall i.e. providing overall general security to the mall as a whole. It is to be noted that the assessee is not responsible for providing security inside the leased premises i.e. the shop in the mall. It is the portion other than leased portion which is the responsibility of the assessee. And the assessee earns CAM charges for the same. Accordingly, the assessee no portion of the security charges is allocable to income from house property as the same to the lease house property is no way responsibility of the assessee.

60 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

“104. We have considered the rival contentions and found that during the year under consideration, the assessee had debited in the profit & loss account a sum of Rs. 1,64,76,289 as Security charges. In the course of the assessment proceeding the assessee submitted the detailed submission before the Ld. AO. And the Ld.A0 applied the proportion of 38.16% and accordingly disallowed a sum of Rs.62,87,352 as being proportionately related to income from house property.

61 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

responsible for providing security inside the leased premises i.e. the shop in the mall. It is the portion other than leased portion which is the responsibility of the assessee. And the assessee earns CAM charges for the same. Accordingly, no amount of the security charges is allocable to income from house property as the same to the lease house property is no way responsibility of the assessee. Eg. if M/s Pantallons (tenant) keeps a security guard or inserts CCTV cameras inside the leased premise than M/s Pantallons will pay for the same and not the assessee. So the question of assessee incurring security expenses for the rental Income doesn't arise.

62 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

offered as Business Income". The accounting system of the assessee has segregated each expenditure at its origin and only expenditure pertaining to business is claimed. Thus, it is evident that, there is no incurrence of specific expenses by the assessee for its rental activity and hence no disallowance can be made. Moreover, the disallowance cannot be made wherein the appellant's business is a consolidated business and hence the allocation cannot be made based on the sources of incomes. There were no provisions under the Act which correspond to Sections like Section 14A, 10A, and similar such sections which prescribe the specific bifurcation of expenses/separate accounts workings to be done. Even on the principles of the consistency the Assessing Officer was not justified in giving different treatment, other than to treatment of various expenses as given by him in earlier years. For this proposition, we rely on the judgement of Apex Court in the ease of Radhasoami Satsang v. CIT. 193 ITR 321 (SC) wherein it has been held as under :

“We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where-a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee. We do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhosoanii Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961.”

63 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

"Precedent keeps the law predictable and so more or less ascertainable- A lawyer cannot always say with confidence exactly how a judge will decide a point of law. But he can put the decision between fairly narrow limits. In any matter of novelty he will know that the boldest judge will not move more than a small distance beyond that which has already been decided." We think it unwise to deviate from the earlier conclusions and would, therefore, answer the two questions referred to us against the assessee by saying." 111. In view of the above facts and circumstances, the Assessing Officer has not justified in disallowing the security charges by reallocating the same to income from house property.

64 ITA 3992 to 3994/MUM/2018 DCIT Vs. M/s Phoenix Mills Ltd.

Order pronounced in the open court on 15th November, 2019. Sd/- Sd/- (PAWAN SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 15/11/2019 *Ranjan Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, सत्यापपत प्रतत //True Copy//

(Asstt. Registrar) ITAT, Mumbai