DCIT, CIR-1, SILIGURI, SILIGURI vs. M/S GANGADHAR DEVELOPERS PVT. LTD., SILIGURI

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.401/Kol/2016 & C.O. No.25/Kol/2016 (a/o ITA No.401/Kol/2016) Assessment Year:2011-12 DCIT, Circle-1, V/s. M/s Gangadhar Aayakar Bhawan, Developers Pvt. Ltd., Kapil Centre, 2nd Mile, Paribahan Nagar, Matigara, Siliguri Pin Sevoke Road, Siliguri- 734010 734001 M/s Gangadhar V/s. DCIT, Circle-1, Developers Pvt. Ltd., Aayakar Bhawan, Kapil Centre, 2nd Mile, Paribahan Nagar, Sevoke Road, Siliguri- Matigara, Siliguri, 734001 Pin-734010 [PAN No.AACCG 0424 H] .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Subash Agarwal, Advocate आवेदक क� ओर से/By Assessee Shri S. Dasgupta, Addl. CIT-DR राज�व क� ओर से/By Revenue 20-02-2018 सुनवाई क� तार�ख/Date of Hearing 20-04-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal is preferred by the Revenue against the order of Commissioner of Income Tax (Appeals)-20, Kolkata dated 10.12.2015 for the Assessment Year 2011-12 and the same is being disposed of along with Cross Objection (CO) filed by the assessee being CO No.25/Kol/2016. Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue and Shri Subash Agarwal, Ld. Advocate appeared on behalf of assessee.

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 2 2. The Revenue has raised the following grounds of appeal:- “1. That the Ld. CIT(A) has erred in law and on fact in changing head of income from house property to business income without giving cogent finding himself. 2. That the Ld. CIT(A) did not call for report from the A.O u/s. 250(4) regarding change of head of income. He simply agreed with the AO on the so called remand report. 3. The assessee did not cooperate in assessment proceedings and produce evidences at the time of assessment. The Ld. CIT(A) accepted the additional evidences without recording reasons. This is in violation to the ratio of judgment in the case of (2013) 357 ITR 657 (Calcutta) Mitra Logistics (P) Ltd. regarding Rule 46A of IT Rules, 1962. 4. That the AO has rightly disallowed interest u/s. 24(b) as borrowed fund were not utilized for construction purpose. The Ld. CIT(A) has erred in law and fact in deleting it and allowing u/s. 36(1)(iii) which was not claimed in return. Reliance is placed on the judgment – Goetze (India) Ltd. vs. ICT 204 CTR 182(SC). 5. That the appellant carves leave to add, amend or alter the grounds of appeal, if any.” 3. All the issues are interconnected therefore being taken up together for purpose of adjudication. The issue raised by the Revenue is whether the ld. CIT(A) is correct in deleting the addition made by the AO on account of interest expenses. 4. Briefly stated facts are that the assessee in the present case is a private imited company and engaged in the business of real estate development in Siliguri area. The assessee has constructed various commercial properties as offices/ shops which were sold to various parties. The assessee in addition to the above has rented out the commercial properties to the parties as detailed under:- S.No. Name of the party Nature of the property 1. Pantaloons retail India Ltd Commercial property 2. Vodafone Essar South Ltd Commercial land The assessee has declared the rental income in respect of the above stated properties under the head “income from house property”. The total rent was shown for Rs.11,01,33,251/- only. The assessee against such rental income claimed interest expenses of Rs. 5.14 crores u/s 24(b) of the Act.

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 3 However the AO was of the view that no deduction on account of interest expenses can be allowed to the assessee against the rental income derived from the letting out of commercial land. The AO further observed that property was let out to Pantaloons Retails India Ltd on 07.03.2007 whereas the property was let out to Vodafone Essar South Ltd on 12.06.2008. The possession was given to the tenants immediately on signing of the lease agreement. It was also observed that the assessee has taken the loan from Central bank of India on 23.11.2007 for Rs. 50 Crores which was renewed on 24.07.2009. Thus, it is clear that no borrowed fund has been used in the construction of the commercial property which was let out to M/s Pantaloons Retails India Ltd & Vodafone Essar South Ltd.

4.1 The AO also noted that the assessee has shown in its balance sheet as on 31.03.2007 loan of Rs.15 crores approximately. Out of the said loan a sum of Rs.3 crores was advanced as loan and a sum of Rs.3.20 crores was invested in the closely held companies. As such, the AO was of the opinion that the loan taken by the assessee for Rs.50 crores cannot be claimed to have utilized for making the payment of the earlier loan as the amount of loan was of minuscule value. In view of above, the AO was of the view that no loan / borrowed fund has been used for the construction of the properties which have been rented out as discussed above. Accordingly, there is no question of claiming the deduction u/s 24(b) of the Act. Thus, the AO issued show caused notice upon assessee for the disallowance of the deduction claimed by the assessee u/s 24(b) of the Act vide letter dated 11.11. 2013. The AO in the show cause notice also observed that properties which have been let out have been classified in the financial statement as stock-in-trade. The details of the interest expenses stand as under:- Sl. Name of the bank with address Nature of loan Interest paid in No. rupees 1 Central Bank of India P.S. Road, Gangtok, Term loan 5,04,67,849/- Sikkim Corporation Bank, Geetanjali Complex (2nd 2 Loan against 1,04,008/- Floor) Seoke Road, Siliguri fixed deposits 3 Allahabad Bank, Singhtham, Sikkim Loan against 8,23,045/-

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 4 Key Man Policy 4 Magma Leasing Ltd., City Plaza, Sevoke Equipment hire 29,153.43 Road, Siliguri purchase 5 Central Bank of India,a Gangtok, Penal Term loan 3,654/- Interest 5,14,27,709.43

However the assessee failed to reply to the notice issued by the AO vide letter dated 11.11.2013. Accordingly the amount of interest expenses was disallowed and added to the total income of the assessee.

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 5 remand report and they need not be repeated again. Thus, this issue is so decided to treat assessee’s lease rental income as business income and accordingly, the AO is directed to allow business expenses and interest expenses so claimed by the assessee as business expenditure.” The Revenue, is aggrieved with such order of Ld. CIT(A) has now come in appeal before us. 6. The Ld DR before us submitted that the assessee has not raised any ground of appeal before the Ld CIT(A) for the change of head of income. Therefore the Ld CIT(A) erred in treating the rental income as business income of the assessee. The ld. DR also alleged that the assessee has also filed additional documents before the Ld CIT(A) for treating the rental income as business income which was admitted by the Ld CIT(A) without taking the remand report from the AO. Thus, there is violation of rule 46A of Income Tax Rules, 1962. Ld. DR further stated that Ld CIT(A) has not applied his mind to check whether the interest expenses has nexuses with the business of the assessee. He vehemently supported the order of AO and relied on the grounds of appeal raised in the memo of appeal. On the other hand the Ld AR before us filed a paper book which is running pages from 1 to 158 and stated that the AO in the assessment order pertaining to assessment year 2008-09 as per the direction issued by the Ld CIT u/s 263 of the Act has treated the rental income of the assessee as business income. Thereafter, the impugned rental income has been treated as business income in the AYs 2009-10, 2010-11, 2012-13 and 2013-14 respectively. The copies of the assessment orders are placed on pages 107 to 158 of the paper book. AR in support of assessee’s claim also relied on the judgment of Hon’ble Supreme Court in the case of Excel Industries Ltd. reported in 358 ITR 295 (SC) and on the order of Hon’ble Kolkata Tribunal in the case of PFH Mall & Retail Management Ltd. Vs. ITO 110 ITD 337 (Kol). He relied on order of Ld CIT(A).

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 6 7. We have heard the rival contentions and perused the materials available on record and case laws cited by Ld. AR. The issue in the instant case relates whether the rental income should be charged to tax under the head “house property” or “business income” and consequentially the treatment of interest expenses incurred by the assessee. In this regard, we find that the AO in his remand report has clearly stated that income should be treated as income from the business. The copy of the remand report is placed on pages 88 to 94 of the paper book. The relevant extract of the remand report is reproduced below:- “from the above discussion, it is seen that the lease rental income derived by the assessee from “Cosmos Mall” does not qualify as “income form house property” and accordingly the deduction availed u/s 24(a) or u/s.,24(b) is inadmissible and is liable to be disallowed. In the course of hearing, the above facts were brought to the notice of A/R of the assessee. After going through these facts, the A/R of the assessee also realized that all these years, the assessee was claiming wrong deduction u/s. 24(a) & u/s. 24(b) of the IT Act on lease rental income, which actually in this case is a business income. He then referred to assessee’s grounds of appeal wherein the assessee has expressed that if the interest is not allowable u/s. 24(b), the same should be allowed u/s 36(1)(iii) of the Act. He accepted that such rental receipts should be considered as ‘business receipts”. It is also relevant to mention here that same identical issue was involved in another assessment year i.e., AY 2012- 13, which was very recently assessed u/s. 143(3) of the Act on 30/03/2015. In the course of assessment of that return, the A/R of the assessee filed a written declaration dated: 25/03/2015 duly counter- signed by one of the Directors, Shri Ajay Agarwal declaring that the lease rental received from leasing of “Cosmos Mall” be treated as “business receipts” and accordingly, the interest incurred by allowed u/s. 36(1)(iii) of the Act. the assessment of that A.Y 2012-13 was finalized accordingly. Considering these facts and circumstances of the case, the lease rental income may be treated as “ business income”. It was also observed that the Revenue has accepted such rental income as income under the head “business” in the earlier as well as subsequent assessment years in the assessments framed under section 143(3) of the Act. Therefore, the rental income should be treated as income from the business for the year under consideration. In holding so, we also find support &

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 7 guidance from the judgment of the Hon’ble Supreme Court in the case of Excel Industries Ltd (supra). The relevant extract of the order is reproduced below. “It appears from the record that in several assessment years, the revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sake of it.” The allegation of the ld. DR that the additional evidences have been admitted by the Ld CIT(A) without calling for the remand report does not have any basis, because the remand report was duly called upon by the Ld CIT(A) during the proceedings. The copy of the remand report is placed in the paper book as discussed above.

7.1 We also observe that there was no change in the facts and circumstances of the case for the AY 2011-12. Hence, the principle of consistency as enunciated by the Hon'ble Supreme under the giggling at the Court in the matter of Radhasoami Satsang v. CIT reported in 193 ITR 321 should be applied in the year under consideration.

7.2 We also find support from the order of Hon’ble Kolkata Tribunal in the case of PFH Mall & Retail Management Ltd. (supra) wherein it was held as under:- “Mere fact that the income is attached to immovable property, cannot be the sole criterion for assessment of such income as income from house property. It is necessary to dig further to find out what is the primary object of the assessee while exploiting the property. If it is found that the main intention is for simply letting out property or any portion thereof, the resultant income must be assessed as income from house property. If, on the other hand, the main intention is found to be the exploitation of the immovable property by way of commercial activities, then the resultant income must be held as business income. In the instant case, the services rendered by the assessee were the result of its activities carried on continuously in an organized manner with a set purpose and

ITA No. 401/Kol/2016 & CO. 25/Kol/2016 A.Y 2011-12 DCIT Cir-1, Slg. Vs. M/s Gangadhar Developers Pvt. Ltd. Page 8 with a view to earn profit. Hence, all these activities were in the nature of commercial activities and the income derived by the assessee from the shopping malls/business centres was to be assessed as business income and not as income from house property.” In view of above, we do not find any infirmity in the order of Ld CIT(A). Hence the ground of appeal filed by the revenue is dismissed. 8. In the result, Revenue’s appeal is dismissed. Coming to assessee’s CO No.25/Kol//2016. 9. In the CO, the assessee has merely supported the impugned order of Ld. CIT(A), whereby he deleted the disallowance made by the AO. since we have already uphold the order of Ld. CIT(A), hence, CO of assessee has become infructuous. 10. In the result, assessee’s CO is dismissed as infructuous. 11. In combine result, appeal of Revenue stands dismissed and that of assessee’s CO is dismissed as infructuous. Order pronounced in the open court 20/04/2018 Sd/- Sd/- (�या'यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp, Sr.P.S )दनांकः- 20/04/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee-M/s Gangadhar Developers Pvt. Ltd. Kapil Centre, 2nd Mile, Sevoke Road, Sliguri-734001 2. राज�व/Revenue-DCIT, Circle1, Aayakar Bhawan, Paribahan Nagar, Matigara, Siliguri, Pin-734010 3. संबं4धत आयकर आयु5त / Concerned CIT Kolkata 4. आयकर आयु5त- अपील / CIT (A) Kolkata 5. 8वभागीय �'त'न4ध, आयकर अपील�य अ4धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड= फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ4धकरण, कोलकाता ।