ASST CIT 14(2), MUMBAI vs. HITEN P.DALAL, MUMBAI

Hiten P. Dalal ACIT 14(2) Plot No. 77, ABC Govt. Earnesh House, बिधम/ R. No. 302, 3rd floor, Indl. Estate, Vs. Charkopkandivali(w) Narmian Point, Mumbai-400021 Mumbai-400 067 स्थायीलेखासं./जीआइआरसं./ PAN No. AABPD5221H (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri M. C. Omi Ningshen, DR प्रत्यथीकीओरसे/Respondentby : Shri Deepak Trashawala, AR सुनवाईकीतारीख/ : 30/05/2018 Date of Hearing घोषणाकीतारीख / 27/07/2018 : Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

Hiten P. Dalal 1. On the facts and in the circumstances of the case and in law the Ld. 011(A) has erred in holding that the income arising from investment in under construction flats and later on sale of the said flats should be assessed under head Short Term Capital Gains instead of Business income.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has further erred in deleting the addition made on account of disallowance of rent payment, as the reason for taking less rent than making payment for the same flat is yet to be established.

4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, allowed the appeal of the assessee.

Now before us, the revenue has preferred the present appeal by raising the above grounds.

Ground No. 1 3. Thisground raised by the revenuerelates to challenging the order of Ld. CIT(A)in holding that the income arising from investment in under construction flats and later on sale of the said Hiten P. Dalal flats should be assessed under head Short Term Capital Gains instead of Business income.

5.6 I have perused the rival submissions and the facts and circumstances of the present case very car fully. It is an undisputed fact that the appellant had shown the two under construction flats no.1803 & 1804 at Oberai Springs as his investments in preceding assessment years and incidentally the assessments for proceeding few years of the appellant were completed u/s 143(3).

Hiten P. Dalal In the assessment year 2009-10 under consideration he AU has treated the profit On saleof said flats as business income on the pretext that the appellant has continuouslyinvested in the properties from year to year, and disposed off the two flats in an ongoingpurchase/ sale activity; and also incurred admjAtrative expenses of Rs. 1,42,75,134/- I find that the appellant has shown with facts and figures that out of his own capital of Rs 38 crores and not with single borrowed funds, he made total investments in property atRs 14.49 crores only, including in his self occupied properties. The appellant has also shown that he had not sold any property in proceeding 3 assessment years and in subsequent 2 assessment years. In such case, I find that the reliance placed by theappellant on various judicial. pronouncements is not out of context, and therefore, it is difficult to sustain the said activity heappeii1Lnt in the nature of trade.

As regards the alleged administrative expenses Of Rs.1,42,75,134/-, I find from the details submitted by the appellant that, neither such expenditure were incurred towards property management nor the same were allowed as such from the income from sale of property assessed as business income . In all fairness,if Hiten P. Dalal at all the contention: of the A.O that suchexpenditure was incurred towards property management is to be accepted, there will beno rationale to ignore the allowability of such expenditure from the business income as assessed. However, in any case the break-up of such expenses submitted by the appellant clearly shows that such expenditure are _not towards the property management hence said contention of the AO is without any merit.

Looking at the facts of case as a whole, I am of a considered opinion that it would not be justified to treat. the investment by the appellant in two flats as adventure in the nature of trade, and hence the profit on sale of said flats cannot be assessed as business income of the assessee as made in the assessment order. Hence, the treatment of such profit of Rs.1,78,35,490/- is considered as "Short Term Capital gain as returned, and thereforethe ground No. 2 of the appeal is allowed.

After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that assessee had shown the two under construction flats No. 1803 and 1804 at Hiten P. Dalal Oberoi Springs as his ‘investments’ in the preceding assessment years and the assessments for the preceding years were completed u/s 143(3) of the Act. In the case of Gopal Purohit (ITA No. 1121/Mum/09), the Hon’ble Mumbai High Court has held that ruling of consistency should apply, when the facts are identical. This decision of Hon’ble Mumbai High Court was also confirmed by Hon’ble Supreme Court, therefore in view of assessee’s stand accepted by the revenue in the past, there were no reasons for the AO to give a different treatment in the present assessment year. As far as the claim of expenditure is concerned, the revenue has failed to pin point that such expenditure was incurred towards property management. Therefore, after rightly appreciating the facts of the present case, the Ld. CIT(A) correctly reached to the conclusion that it would not be justified to treat the investment by the assessee in two flats as ’Adventure in the nature of trade’, and hence the profit on sale of said flats cannot be assessed as ‘Business income’ of the assessee as made in the assessment order.Therefore, Ld. CIT(A) has rightly Hiten P. Dalal considered the treatment of such profit of Rs.1,78,35,490/- as "Short Term Capital gain”. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this groundraised by the revenue stands dismissed.

Ground No. 2 5. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the addition made on account of disallowance of rent payment, as the reason for taking less rent than making payment for the same flat is yet to be established.

Hiten P. Dalal Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6.1 to 6.5 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 6.5 of its order and the same is reproduced below:-

6.5 I have perused the rival submissions and facts circumstances of the case very carefully. I find that the appellant has submitted the three registered leave agreements, one for taking the said flat on rent, and other two for further letting out the same flat. The income from property not owned by the assessee cannot be taxed as Income from House Property u/s 22 of the Act hence the appellant had shown such rent income (less rental expenditure) under the head Income from Other Sources. The AO, while accepting the said treatment in respect of Rental income of Rs.10,50,150/-, disallowed the Rental Expenses to the extent of Rs. 12,90,000/- I find that the appellant has shown thatthe said rental expenses of Rs .12,90,000/- had been incurred in respect of same flat for which the said rental income was earned, and hence the direct nexus of the expenditure to the said income cannot be Hiten P. Dalal denied. In view of this, the expenditure of Rs 12,90,000/- is allowed from the Income from Other Sources, even though the net income may be in negative relying upon the case of VirmatiRamkrishnaVrs. CIT (supra) wherein in respect of expenditure permissible u/s 57(iii), it was held that it is not nessary to show that the expenditure was profitable one or that in fact income was earned. Therefore, ground no. 3 of appeal is allowed.

After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) after seeking the remand report and after appreciating the facts of the present case and reached to the conclusion that the assessee was not the owner of the said property and had based his claim on the basis of three registered leave agreements, one for taking the said flat on rent and other two for further letting out the same flat. Therefore, the income from property not owned by the assessee was rightly held to be not taxed as income from house property u/s 22 of the Act. From the records, the assessee had Hiten P. Dalal also proved the direct nexus of the expenditure to the rental income. Hence, Ld. CIT(A) while relying upon the judgment in the case of Virmati Ram Krishna Vrs. CIT (supra), had rightly concluded that for the expenditure permissible u/s 57(iii), it is not necessary to show that the expenditure was profitable one or that in fact income was earned.

Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this groundraised by the revenue stands dismissed.

Ground No. 3 & 4 7. These grounds raised by the revenue are general in nature, thus requires no specific adjudication.