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Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-25 [in short ‘CIT(A)’], Mumbai and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
At the beginning of hearing, Ld. counsel of the assessee submits that the appellant would not press the 3rd ground of appeal
because of small amount of Rs.37,636/- brought to tax by the Assessing Officer M/s Skyline Prashasti (AO) as income from other sources. Hence, we treat the 3rd ground of appeal as dismissed being not pressed.
3. The 1st ground of appeal: “On the facts and circumstances of the case and in law, the learned CIT (A) erred in affirming the decision of Assessing Officer for disallowing proportionate interest expenditure and municipal taxes which are in proportion to the non-let out area to total constructed area, while calculating "Income form House property".
4. The appellant is a partnership firm engaged in the development of real estate projects. It filed its return of income for the assessment year (AY) 2012-13 on 27.09.2012 declaring income of Rs.4,94,54,315/-. During the course of assessment proceedings, the AO noticed that the appellant had leased out 66.43% of the total constructed area whereas it deducted the entire interest amount. The AO was of the view that as municipal and interest related to entire constructed area and not leased out area only, municipal taxes and interest to the extent of 66.43% only were to be allowed. In response to a query raised by the AO, the appellant filed a written submission relying on the decision in Sarabhai Management Corporation Ltd. v. CIT 92 ITR 151 (SC). However, the AO was not convinced with the above reply of the assessee as in the instant case, the question was not about timing of the commencement of business, but about chargeability of interest and other expenses proportionately to the area let out (from which the income was received during the year). Accordingly, the AO disallowed the proportionate interest expenditure and municipal taxes which were in proportion to M/s Skyline Prashasti the non-let out area to total constructed area, while calculating income from house property.
5. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) followed the order of his predecessor for the AYs 2009-10 and 2010-11 and held that the AO was right in allowing municipal taxes and interest on proportionate basis.
6. Before us, the Ld. counsel of the assessee relies on the order of the Tribunal in the case of the assessee for the AYs 2009-10 and 2010-11 and submits that the above issue has been decided in favour of the assessee. On the other hand, the Ld. DR relies on the order of the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the ITAT ‘J’ Bench Mumbai in the case of the assessee for the AY 2009-10 (ITA No. 7741/M/2012). Similar ground of appeal
was raised, as mentioned below:
1. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of Assessing Officer for disallowing proportionate interest expenditure and municipal taxes of Rs.2,04,11,342/- and Rs.11,60,281/- which is in proportion to the non-let out area, while calculating income form House property.” The Tribunal vide order dated 27.03.2018 held as under:
8. We have heard both the parties and perused carefully the relevant material on record as placed before us. The undisputed facts of the case are that the assessee is engaged in the business of construction of properties for M/s Skyline Prashasti the purpose of letting out. Till the year end 31.03.08 the assessee constructed and completed six floors out of total 8 floors thereby completing construction of 3,15,000 sq. ft. till the year end. Whereas the area let out during the year was only to 2 parties namely M/s. Vodafone Essar Ltd. approximately 40,000 sq. ft. and M/s. Indus Tower Ltd. of 11,819 sq. ft. thus aggregating to 51,819 sq. ft. which worked out to 16.45% of the total area constructed. We find merit in the argument of the Ld. A.R. that even if the notional rent in respect of the area which is not let out during the year is taken, the assessee will be entitled to vacancy allowance as per section 23 of the Act and proviso to section 23 provides for deduction of municipal taxes under the head income from house property on payment basis. Similarly, provisions of section 24 ,2nd proviso and explanation to section 24 provided for deduction of interest incurred on the borrowed capital for the construction of the property and no restriction of any kind whatsoever has been provided in the said section. After carefully going through the facts of the case and arguments of both the parties, we are of the considered view that the interest and municipal taxes have to be allowed in toto and cannot be restricted in proportion to the area let out during the year. The intention of the assessee is very clear that the property was constructed for the purpose of letting out and in the subsequent year the entire property was let out. The ground no 1 raised by the assessee is allowed and AO id directed accordingly.” Facts being identical, we follow the above order of the Co-ordinate Bench and allow the 1st ground of appeal
8. The 2nd ground of appeal “On the facts and circumstances of the case and in law, the learned CIT (A) erred in affirming the decision of the Assessing Officer for disallowing proportionate expenditure which is in proportion to the non-let out area to total constructed area, while calculating Business Income.”
M/s Skyline Prashasti