STERLING ASSOCIATES,GURGAON vs. ACIT CIRCLE-4(1), GURGAON

The Ground No.1 is regarding the addition of Rs. 4,12,77,280/- treating the same as ‘business income’. During the year under consideration, the assessee declared rental income of Rs. 4,12,77,280/- under the head ‘income from house property’. The Ld. A.O. made addition by treating the rent receipt as business

The Ld. AR submitted that the assessee owns building that has been let out to various Companies for the past many years and the assessee earned rental income of Rs. 4,12,77,280/-in the year under consideration. The assessee shown the said income from ‘income from house property’ and the same has been accepted by the Department for A.Y. 2009-10 to 2014-15 and the very same issue has been dealt by the Assessing Officer for A.Y. 2013-14 and completed the assessment u/s. 143 (3) of the Act accepting the contentions of the assessee.

It is the case of the Revenue/ Ld. DR that in the object clause of the partnership deed, it is mentioned that the main object is to engage in business of providing infrastructure facilities and renting. It is also mentioned the fact that the assessee receives the maintenance charges apart from the agreed lease/ rent from the tenants. Further the Assessee is recovery the maintenance charges in addition to the monthly rent according treated the said income

We have heard the parties perused the material available on record.

It can be seen from the record that right from Assessment Year 2009-10 to 2014-15, the assessee had been showing the rental income as ‘income from house property’ and the same has been accepted by the Department. To substantiate the said claim, the assessee produced the copy of the acknowledgement of return of income and computation of income for the Assessment Year 2009-10 to 2014-15. Apart from the same, even in the Assessment Year 2013-14 the case of the assessee has been completed scrutiny vide order dated 15/04/2015 passed u/s 143(3) of the Act, there has been no change in the circumstances during the year.

It is also found that a specific query in regard to the issue of ‘income from house property’ has been raised by the A.O. in M/s Sterling Associates Vs. ACIT Question No. 3 in the notice dated 15/04/2015 issued u/s 142(1) of the Act for Assessment Year 2013-14 and the assessee filed a reply dated 29/02/2016 which has been duly accepted by the A.O., and the returned income of the assessee for Assessment Year 2013-14 has been accepted. It is the case of the assessee that the assessee has never provided any kind of maintenance service to the tenant during the year as well as in the past years, further, even the maintenance was received in lieu of rent and the maintenance has always been offered under the head ‘income from house property’ and no systemic or organic activity of maintenance is being undertaken by the assessee. Further, contended that the Department has always accepted the maintenance income as income from house property as the assessee has never provided any service to the tenant and of the maintenance cost was borne by tenant only. The Ld. Assessee's Representative has also provided details of maintenance recorded from the tenant in form of a chart to contend that the assessee had made expense of Rs. 54,760/- for lift maintenance and same has been recovered from the tenant and the TDS has been deducted by the tenants on the rental income of the assessee including the maintenance charges. Considering the M/s Sterling Associates Vs. ACIT above facts and circumstances, we find error in the approach of the Lower Authorities in treating the said income under the head of ‘income from business and profession’. It is well settled law that if the assessee is not engaged in providing systematic or organized activity of providing services to the occupiers of shops/stalls, then it will not constitute the receipt from them as ‘business income’. For the said proposition we rely on the Judgment of Hon’ble Apex Court in the case of Raj Dadarkar and Associates Vs. ACIT, Central Circle, 46, (2017) 394 ITR 592(S.C.) By considering the above factual matrix and relying on the judgment of the Hon'ble Supreme Court in the case of Raj Dadakar and Associates (supra) we will allow the Ground No. 1 of the assessee and delete the addition.

Ground No. 2 is regarding enhancement of the income of the assessee by disallowing interest expenditure of Rs. 1,06,28,970/- on housing loan. During the course of the assessment proceedings, the A.O. observed that the assessee had given loans and advance which were showing outstanding to the tune of Rs. 20,92,49,867/-. The A.O. noted that the assessee debited incurred interest expense of Rs. 2,12,57,942/- to the Profit and Loss Account on account of M/s Sterling Associates Vs. ACIT borrowing from India Bulls Finance Ltd. and out of the same, interest expenditure of Rs. 1,06,28,971/- had been allocated to interest on housing loans and claimed as expenditure against rental income. The A.O. noted that out of the loan and advance the interest income was shown only from M/s ISA Estate Pvt. Ltd. amounting to Rs. 79,79,995/- against which interest expenses of the same amount was also claimed. The Assessing Officer after examining the issue of interest expenses of Rs.1,06,28,970/- not made any addition.

In the first Appeal, it is observed by the Ld. CIT(A) that while computing the total income of the assessee no addition was made by the A.O, therefore, the Ld. CIT(A) vide office letter dated 25/10/2018 called for certain details. On 10/12/2018, the Ld. CIT(A) issued notice of enhancement and further the Ld. CIT (A) held that in spite of repeated opportunities there was no compliance by the assessee and was of the opinion that the assessee has failed to justify the claim of interest expenditure of Rs. 1,06,28,971/- against income from rental and maintenance

It is the case of the Assessee that during the assessment proceedings A.O. accepted the contentions of the Assessee and did not draw any adverse inference on the above issue. The Ld. Assessee's Representative has also drawn our attention to the letter dated 22/12/2017 produced at Page No. 51 to 53 of the Paper Book and letter dated 20/11/2017 produced at page No. 73 to 75 of the PB (ii). Thus, submitted that the Ld. CIT(A) has committed

The Ld. DR relying on the order of the Ld. CIT(A) submitted that as the Assessing Officer has not made any addition though the assessee have not submitted any details and the documents, therefore, Ld. CIT(A) rightly made the enhancement which requires no interference by the Tribunal.

We have heard the parties and perused the material. During the assessment proceedings the Assessing Officer issued notice u/s. 142(1) of the Act to the assessee on the issue of interest expenses. The assessee filed reply to the said notice vide letters dated 21.12.2017 and 20.11.2017, which are produced at page No.51-53 of the paper book 1 and 73-75 of paper book 2 respectively. The Ld. CIT(A) made enhancement on the ground that the assessee has failed to justify the claim of interest expenses. The said observation of the Ld. CIT(A) is contrary to the material placed before us. The Ld. Assessing Officer has specifically rise the M/s Sterling Associates Vs. ACIT issue of interest expenditure and the assessee had produced several documents along with the submission which has been considered by the Assessing Officer and accepted the contention of the assessee. The Ld. Assessing Officer has reproduced the contentions of the assessee at page No.3 of the Assessing Order and has not drawn any adverse inference, therefore, the findings of the Ld. CIT(A) is erroneous. The Hon’ble High Court of Karnataka in the case of CIT Vs. Sridev Enterprises reported in 192 ITR 165 (Kar.) observed that outstanding due on the first day of the accounting year is the amount that stood outstanding on the last day of the previous accounting year, therefore, its nature and status cannot be different on the 1st day of the current accounting year, from its nature and status as on the last day of the previous accounting year. Considering the above facts and circumstances of the case, we are of the opinion that the Ld. CIT(A) has committed error in making enhancement income of the assessee by disallowing interest expenditure of Rs.1,06,28,970/- on housing loan. Accordingly, we allow ground No.2 of the assessee and delete the enhancement made by the Ld. CIT(A).