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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI ANADI N. MISHRA
Date of Hearing : 27-07-2016 Date of Order : 29-07-2016
ORDER PER BENCH The Revenue has filed these four appeals against the separate impugned orders passed by the Ld. Commissioner of Income Tax (Appeals-XVI), New Delhi relevant for assessment years 2005-06, 2006-07, 2007-08 and 2010-11. Since the issues involved in these appeals are common and identical, hence, the appeals were heard
ITA NO. 4550-4553/DEL/2014 together and are being disposed of by this common order for the sake of convenience, by dealing with (AY 2005-06).
Since the grounds in all the four appeals are common, hence, we are reproducing the following grounds of appeal of only, for the sake of brevity.
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating the rental income of the assessee as “Business Income instead of “Income from House Property” by not appreciating the fact that the assessee is accounting the unsold flats as its stock in trade.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the assessee is in the business of developing building and construction of flats since the time of its inception.
Therefore, any profit arises out of the sale of building and flats or renting out is to be assessed as business income.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in relying on the High Court decision in assessee’s own case in earlier year ignoring the fact that the department has not accepted the decision of the Hon’ble High Court on merits. 2
ITA NO. 4550-4553/DEL/2014 However, in the light of the CBDT’s Instruction No. 3/2011 due to low tax effect did not contest in the Hon’ble Supreme court.
4. The appellant craves to be allowed to add any fresh grounds of appeal and / or delete or amend any of the grounds of appeal.
The facts in brief are that the assessee had e-filed its original Return of income declaring income of Rs. 1,62,45,512/- on 19.10.2015.
The same was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) on 20.9.2008 at the declared returned income. Assessment u/s. 143(3) of the Act was made on 19.3.2007 at total income of Rs. 1,62,65,510/- On perusal of the assessment records, it was noticed by the AO that there were discrepancies / wrong claims made by the assessee, in its income from house property. Accordingly, notice u/s. 148 of the Act, was issued on 28.3.2012 and served upon the assessee on 30.3.2012, after recording reasons for the same on 28.3.2012 and approved by the appropriate authorities. In compliance of the notice u/s. 148 of the Act, the assessee filed its reply dated 7.6.2012 and requested that the original return filed u/s. 139(1) on 27.10.2007 may be treated as filed in response to this notice.
3.1 The Assessee company was formed in 1968 with the object of carrying on the business of Builder and Developers. The Company developed the projects like New Delhi House and Mercantile House at ITA NO. 4550-4553/DEL/2014 Connaught Place, Heritage City at Gurgaon (in collaboration with Unitech Ltd.) At present the company has main object of all kinds of construction work and sale / purchase of properties. Notice u/s. 142(1) of the Act was issued on 4.6.2012 and u/s. 143(2) on 8.6.2012 and served upon the assessee by Regd. Post. In response to the same, Assessee’s Authorised Representative attended the assessment proceedings and filed the details from time to time. Thereafter, AO observed that it is clear that the letting out of unsold flats in Mercantile House from which the assessee derives income from rent has a definite and indentifiable nexus with the business of the assessee. Hence, the said income has to be assessed as ‘Income from Business’ and not as income from ‘House Property’. Accordingly, deduction claimed by the assessee u/s. 24 of the Act amounting to Rs. 40,86,258/- was disallowed and added to the income of the assessee and assessed the income of the assessee at Rs. 2,03,51,768/- by passing the assessment order u/s. 143(3) of the Act on 18.3.2013.
Being aggrieved with the aforesaid assessment order, assessee appealed before the Ld. CIT(A), who vide impugned order dated 23.5.2014 has allowed the deduction and accordingly allowed the appeal of the Assessee.
5. Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.
ITA NO. 4550-4553/DEL/2014
6. At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds and requested that addition made by the AO may be upheld.
7. On the contrary, Ld. A.R. of the assessee relied upon the order of the ld. CIT(A). He draw our attention towards the Hon’ble High Court judgment dated 17.5.2013 passed in in the case of assessee titled as New Delhi Hotels Ltd. vs. ACIT wherein the Hon’ble High Court has allowed the deduction to the assessee which was later followed by the Ld. CIT(A) in his impugned order. Accordingly, he requested that by following the Hon’ble High Court of Delhi judgment dated 17.5.2013, as aforesaid, and by upholding the Ld. CIT(A)’s order, Appeal of the Revenue may be dismissed.
We have heard both parties and perused and considered the relevant records available with us especially the impugned order passed by the Ld. CIT(A). We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute by considering the submissions of the assessee and adjudicated the issue in dispute vide para no. 4.1 to 4.2 at pages 3 to 5 in his impugned order. The said relevant para 4.1 to 4.2 of the impugned order is are reproduced as under:-
“4.1 I have carefully considered the submissions of the A/R of the appellant company, the facts of the case as well as the findings of the A.O. Ground no. 1 of appeal is general in nature and not pressed for by the ITA NO. 4550-4553/DEL/2014 appellant. Therefore, no adjudication is called for. In ground no. 2 of appeal the plea of the appellant is that AO has erred in treating the rental income of the appellant as 'business income' instead of 'income from house property'. The assessee company was formed in 1968 with the object of carrying on the business of Builder and Developers. The company developed the projects like New Delhi House and Mercantile House at Cannaught Place, Heritage City at Gurgaon. The company has main object of all kinds of construction work and sale/purchase of roperties. The assessee has shown unsold flats as its stock-in-trade as per Schedule 6 of Balance Sheet and rent from unsold fl.ats at Mercantile House, Connaught Place was shown as Income from House Property. The assessee has earned income of Rs. 1,88,23,077/- from letting out of the said property and after claiming deduction uls 24 of Rs. 40,86,258/- and payment of house tax of Rs. 52,02,219/-, an income of Rs. 95,34,600/- was declared as income from House Property. AO observed that as the assessee is a builder and is engaged in the business of buying and selling of property, the income from letting of the assets held as stock in trade should be treated as business income instead of income from ITA NO. 4550-4553/DEL/2014 House Property. Therefore, AO held that the deduction u/s 24 claimed by the assessee is not admissible. AO observed that since the flats are in the nature of stock- in-trade, income relating thereto should be assessed as business income. Therefore, income from rent of property is treated by the AO as business income and the deductions claimed uls 24 of the IT Act, 1961 amounting to Rs. 40,86,258/- is added back to the income of the assessee.
4.2 It is seen that identical addition was made by the AO in A Y 2004-05, 2008-09 and 2009-10. In the above assessments, AO disallowed the claim of deduction u/s 24 and rent from property held as stock-in-trade was treated as business income as against appellant's claim of the same as Income from House Property. Ld. CIT(A) allowed the appeal of the assessee and upheld the claim of the assessee that the rental income is to be treated as Income from House Property. On further appeal by the department Hon'ble ITAT upheld the view of the AO.
On appeal by the assessee against the decision of ITAT, Hon'ble Delhi High Court in ITA 238/2013, 23912013 and 240/2013 in decision dt. 17.05.2013 for the AY 2004-05, 2008-09 and 2009-10 upheld the view of the ITA NO. 4550-4553/DEL/2014 ld. CIT(A) that rental income should be assessed under the head Income from House Property as under :-
"4. The Tribunal held that it would fall under the head of "profits and gains from business and profession", whereas it is the appellant/assessee's contention that it would fall within the head "income from house property". It appears that this issue is no longer debatable in view of the decision in the case of CIT v Ansal Housing Finance & Leasing Co. Ltd. decided on 31.10.2012 in ITA No. 18/1999. That decision has, subsequently, been followed in CIT v. Discovery Estates Pvt. Ltd (in and 1090/2011) and CI v. Discovery Holding Pvt. Ltd.(in ITA No. 1097/2011) decided on 18.02.2013. One of the questions raised in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) was "whether the Income-tax Appellate Tribunal was right in holding that the rental income should be assessed in the income from the business and not under the head "income from house property"?" This court answered that question in the negative by ITA Nos. 238/13,239/13&240/13 Page 2 of 4 following 8
ITA NO. 4550-4553/DEL/2014 the decision in the case of Ansal Housing Finance & Leasing Co. Ltd (supra).
5. Mr Maratha appearing on behalf of the revenue contended that Ansal Housing Finance & Leasing Co. Ltd (supra) was a decision where the question was with regard to deemed rent on the basis of annual letting value (ALV) whereas in the present appeals, the issue is with regard to the actual rent received in respect of flats let out by the appellant/assessee. However, we find that in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) the issue was in the backdrop of actual rent receipts and not on the basis of deemed rent. Therefore, the decision of this court in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) would govern the present case also.
6. Consequently, while framing the question as to whether the Income-tax Appellate Tribunal was right in holding that rental income should be assessed under the head of "profits and gains from business and profession" and not under the head "income from house property", we answer
ITA NO. 4550-4553/DEL/2014 the same in the negative. We may add, however, that the learned counsel for the appellant had also taken the plea of consistency ITA Nos.
238/13,239/13&240/13 Page 3 of 4 but, we have not examined the same as it was not necessary for us to do so because of the position indicated above.
7. These appeals are allowed as above."
A the facts and circumstances are identical, therefore, respectfully following the decision of Hon'ble Delhi High Court it is held that the rental income should be assessed as Income from House Property. Therefore, AO is not justified in treating the above income as business income and AO is directed to allow deductions claimed by the appellant u/s. 24. The appeal is allowed in the ground.”
7.1 After going through the findings of the Ld. CIT(A) as aforesaid, we have seen that identical addition was made by the AO in AY 2004-05, 2008-09 and 2009-10. In the above assessments, AO disallowed the claim of deduction u/s 24 and rent from property held as stock-in-trade was treated as business income as against assessee’s claim of the same as Income from House Property. Ld. CIT(A) allowed the appeal of the ITA NO. 4550-4553/DEL/2014 assessee and upheld the claim of the assessee that the rental income is to be treated as Income from House Property. On further appeal by the department ITAT upheld the view of the AO. On appeal by the assessee against the decision of ITAT, Hon'ble Delhi High Court in ITA 238/2013, 239/2013 and 240/2013 in decision dt. 17.05.2013 for the AY 2004-05, 2008-09 and 2009-10 upheld the view of the ld. CIT(A) that rental income should be assessed under the head Income from House Property as under:
"4. The Tribunal held that it would fall under the head of "profits and gains from business and profession", whereas it is the appellant/assessee's contention that it would fall within the head "income from house property". It appears that this issue is no longer debatable in view of the decision in the case of CIT v Ansal Housing Finance & Leasing Co. Ltd. decided on 31.10.2012 in ITA No. 18/1999. That decision has, subsequently, been followed in CIT v. Discovery Estates Pvt. Ltd (in and 1090/2011) and CI v. Discovery Holding Pvt. Ltd.(in ITA No. 1097/2011) decided on 18.02.2013. One of the questions raised in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) was "whether the Income-tax 11
ITA NO. 4550-4553/DEL/2014 Appellate Tribunal was right in holding that the rental income should be assessed in the income from the business and not under the head "income from house property"?" This court answered that question in the negative by Page 2 of 4 following the decision in the case of Ansal Housing Finance & Leasing Co. Ltd (supra).
Mr Maratha appearing on behalf of the revenue contended that Ansal Housing Finance & Leasing Co. Ltd (supra) was a decision where the question was with regard to deemed rent on the basis of annual letting value (ALV) whereas in the present appeals, the issue is with regard to the actual rent received in respect of flats let out by the appellant/assessee. However, we find that in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) the issue was in the backdrop of actual rent receipts and not on the basis of deemed rent. Therefore, the decision of this court in Discovery Estates Pvt. Ltd and Discovery Holding Pvt. Ltd (supra) would govern the present case also.
ITA NO. 4550-4553/DEL/2014
Consequently, while framing the question as to whether the Income-tax Appellate Tribunal was right in holding that rental income should be assessed under the head of "profits and gains from business and profession" and not under the head "income from house property", we answer the same in the negative. We may add, however, that the learned counsel for the appellant had also taken the plea of consistency ITA Nos.
238/13,239/13&240/13 Page 3 of 4 but, we have not examined the same as it was not necessary for us to do so because of the position indicated above.
7. These appeals are allowed as above."
7.2 In the background of the aforesaid discussions and respectfully following the decision of Hon'ble Delhi High Court in assessee’s own case, as aforesaid, we are of the view that Ld. CIT(A) has rightly held that the rental income should be assessed as Income from House Property.
Therefore, AO is not justified in treating the above income as business income and CIT was rightly directed to allow deductions claimed by the appellant u/s. 24. In view of the above, we are of view that Ld. CIT(A) has passed a well reasoned order which does not need any interference
ITA NO. 4550-4553/DEL/2014 on our part, hence, we uphold the same and Dismiss the appeal filed by the Revenue.
Following the consistent view, as aforesaid, to 4553/Del/2014 (Ayrs. 2006-07, 2007-08 & 2010-11) filed by the Revenue also stands dismissed.
In the result, all the 4 appeals of the Revenue are dismissed.
Order pronounced in the Open Court on 29/7/2016.