ASST CIT CC 8(4), MUMBAI vs. PHOENIX MILLS LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “C” Bench, Mumbai Before Shri R.C. Sharma (AM) & Shri Pawan Singh (JM) I.T.A. No. 46/Mum/2015 (Assessment Year 2004-05) I.T.A. No. 47/Mum/2015 (Assessment Year 2005-06) I.T.A. No. 48/Mum/2015 (Assessment Year 2006-07) I.T.A. No. 49/Mum/2015 (Assessment Year 2007-08) I.T.A. No. 50/Mum/2015 (Assessment Year 2008-09) I.T.A. No. 51/Mum/2015 (Assessment Year 2009-10) I.T.A. No. 52/Mum/2015 (Assessment Year 2010-11) M/s. The Phoenix Mills Ltd. DCIT/ACIT-CC-47 462, Senapati Bapat Marg Vs. Mumbai Lower Parel Mumbai-400 013. (Appellant) (Respondent) I.T.A. No. 241/Mum/2015 (Assessment Year 2009-10) I.T.A. No. 242/Mum/2015 (Assessment Year 2010-11) DCIT/ACIT-CC-47 M/s. The Phoenix Mills Ltd. Mumbai Vs. 462, Senapati Bapat Marg Lower Parel Mumbai-400 013. (Appellant) (Respondent) PAN No.AAACP3325J Assessee by Shri Vijay Mehta & Shri Anuj Kisnadwala Department by Shri Pradeep K. Singh Date of Hearing 10.8.2016 Date of Pronouncement 06.10.2016

2 M/s. The Phoenix Mills Ltd.

O R D E R Per R.C. Sharma (AM) :- These are the cross appeals filed by the assessee and the Revenue against the order of learned CIT(A) for A.Y. 2004-05 to 2010-11, in the matter of order passed u/s. 143(3)/143(3) read with section 147 and 271(1)(c) of the Income Tax Act.

ITA No. 46 & 47/Mum/2015 2. These are the appeals filed by the assessee against the order of learned CIT(A) for A.Y. 2004-05 & 2005-06, in the matter of imposition of penalty u/s. 271(1)(c) of the Act.

3 M/s. The Phoenix Mills Ltd.

Particulars Expense Expense Expenses Disallowed Disallowed by Disallowed by by A.O. CIT(A) ITAT Personal Expenses of 19,68,335 1,96,834 1,96,834 A.R.Ruia Group Personal Expenses of 23,61,443 2,36,144 2,36,144 B.R.Ruia Group Expenses for Mogra 14,22,571 14,22,571 - Shop Expenses for Penthouse 18,46,165 18,46,165 1,84,617 Total 75,98,514 37,01,714 6,17,594 Particulars Expense Expense Expenses Disallowed Disallowed by Disallowed by by A.O. CIT(A) ITAT Personal Expenses of 2,03,879 20,388 20,388 A.R.Ruia Group Personal Expenses of 17,81,370 1,78,137 1,78,137 B.R.Ruia Group Expenses for Penthouse 60,000 60,000 6,000 Total 20,45,249 2,58,525 2,04,525 5. On the basis of details available on record, only a small portion was found to be personal in nature and therefore disallowance was restricted by the Tribunal even less than 10% of the alleged expenses. As addition and disallowance has been made on estimated basis both by learned CIT(A) and the Tribunal, there is no justification for levy of penalty u/s. 271(1))(c) of the Act with regard to such disallowance on estimate basis. There are so many judicial pronouncements on the issue. Mere disallowance of claim of expenses, penalty for concealment of income or furnishing of inaccurate particulars of income cannot be levied. The ratio and principles laid down by the Hon'ble Supreme Court in CIT vis Reliance Petroproducts Pvt. Ltd., [2010] 322 ITR 158 (SC) squarely applies to the facts of the present case. Where Their Lordships observed and held as follows:-

"A glance at the provisions of section 271 (1 )(c) of the Income- tax Act. 1961, suggests that an order to be covered by it, there

4 M/s. The Phoenix Mills Ltd. has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271 (1 )(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee. because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate. the liability would arise. To attract penalty, the details supplied in the return must not be accurate not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271 (1) (c). A mere making of a claim. which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. Thus, on the facts of the present case, penalty under section 271(1)(c) imposed by the Assessing Officer and confirmed by learned Commissioner (Appeals) is hereby deleted. Accordingly, we do not find any justification for imposition of penalty u/s. 271(1)(c) of the Act with regard to the addition

5 M/s. The Phoenix Mills Ltd. upheld by the Tribunal for less than 10% of the alleged expenses, on estimate basis.

ITA No. 48, 49,50,51,52,241 &242/Mum/2015 7. These are appeals of the assessee against the order of learned CIT(A) for A.Y. 2006-07 to 2010-11, in the matter of order passed u/s. 143(3)/143(3) read with section 147 of the I.T. Act.

Ground No. 1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the reopening the assessment u/s. 147 of the Income Tax Act, 1961. The reopening of the assessment is bad in law, illegal and otherwise void. Ground No. 2: Without prejudice to the generality of Ground No. 1, on the facts and in the circumstances of the case and in law, the learned A.O. is not justified in assuming jurisdiction for reopening the assessment u/s 147 of the Act on the issue of "allocation of expenses" towards the house property income, when the said issue is already a subject matter of an appeal at the time of issue the notice u/s 148 of the Act. Accordingly, it is prayed that said reopening is in violation of express third proviso to section 147. Thus, the reassessment order is consequently bad in law, illegal and otherwise void. Ground No. 3 Without prejudice to Ground 1& 2 above, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the allocation done by AO an amount of Rs.73,27,164

6 M/s. The Phoenix Mills Ltd. out of salaries/ wages to the income disallowance on account of allocation of salaries/ wages to the income from house property of Rs.73,27,164 may kindly be deleted. Ground No. 4: Without prejudice to Ground 1& 2 above, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the allocation done by AO an amount of Rs. 14,76,777 out of advertisement and sales promotion expenses to the income from house property, ignoring the facts of this issue. The assessee prays that disallowance on account of allocation of advertisement and sales promotion expenses to the income from house property of Rs. 14,76,777 may kindly be deleted. Ground No. 5 Without prejudice to Ground 1& 2 above, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the allocation done by AO an amount of Rs. 14,42,894 out of Security Charges to the income from house property, ignoring the facts of this issue. The assessee prays that disallowance on account of allocation of security charges to the income from house property of Rs. 14,42,894 may kindly be deleted. Ground No. 6: Without prejudice to Ground 1& 2 above, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the allocation done by AO an amount of Rs. 2 1,36,366 out of Other Miscellaneous Expenses to the income from house property, ignoring the facts of this issue. The assessee prays that disallowance on account of allocation of sum out of Other miscellaneous Expenses to the income from house property of Rs. 21,36,366 may kindly be deleted. Without prejudice to Ground 18& 2 above, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the allocation done by AO of additional sum of Rs. 86,03,116 out of repairs and maintenance expenditure to the income from house property, ignoring the facts of this issue. The assessee prays that disallowance on account of allocation of Repairs and Maintenance expenses to the income from house property of Rs. 86,03,116 may kindly be deleted. Ground No. 8:

7 M/s. The Phoenix Mills Ltd. Without prejudice to Ground 1& 2 above, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition done by AO an amount of Rs. 2,25,741 u/s. 69C on account of commission paid. The assessee prays that the same may kindly be deleted. 9. First we shall take up legality of the reopening of the assessment challenged by the assessee.

8 M/s. The Phoenix Mills Ltd. 11. From the record we found that similar disallowance was made by the Assessing Officer in the A.Y.2001-02, A.Y.2003-04, A.Y.2004-05 and A.Y.2005-06. The said disallowance was partly deleted and partly upheld by the Hon'ble CIT(A) in all the impugned years and the Tribunal vide its order dated 27-04-2012 confirmed the action of CIT(A).

9 M/s. The Phoenix Mills Ltd. assessment made u/s 153A which was sought to be reopened. Moreover, the change of opinion cannot be a ground for reopening of the assessment.

(a) there must be a reasonable belief on the part of the officer that • income has escaped assessment; and (b) that there must be a failure on the part of the assessee to fully and truly 'disclose all material facts necessary for assessment.

10 M/s. The Phoenix Mills Ltd. The said proviso of section 147 has been reproduced below for ready reference: "Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:" 17. In view of the present facts and circumstances and on perusal of the reasons recorded for reopening the assessment as provided to the assessee on 06.02.2013, it is clear that the grounds/reasons for reopening do not indicate any failure on the part at the assessee to disclose fully and truly all material facts necessary for assessment nor do they indicate the presence of any "tangible material" to come to the conclusion that there is any escapement of income from assessment. Thus, no reopening of the assessment can be made in the assessee's case since there is no new material found 18. Furthermore merely on the basis of change of opinion with respect to same set of facts, assessment cannot be reopened. Our view is supported by the decisions of Hon'ble Jurisdictional High Court in the case of G.N. Shaw (Wine) Pvt. Ltd. Vs. ITO (260 ITR 513), and Hon'ble Andhra Pradesh High Court in the case of Sirpur Paper Mills Ltd. Vs. ITO (114 ITR 404), wherein the court held that the Income-tax department cannot be permitted to bring fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. In the latest decision of the Supreme Court in the case of- CIT v. Keivinator (India) Ltd. dated January 18, 2010 reported In

11 M/s. The Phoenix Mills Ltd. [2010], 320 ITR 561, the Hon‟ble Supreme Court has affirmed the two decisions of the Delhi High Courts - CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Delhi) and CIT Vs. Eicher Ltd. (2007) 294 ITR 310 (Delhi) and held that the Assessing Officer can reopen an assessment only on the basis of some tangible material to form reasons to believe that income had escaped assessment. A mere change of opinion could not be a valid ground for issuing a notice u/s. 148 of the Act. 19. The Supreme Court in the case of CIT v/s. Foramer France (264 ITR 666) held that mere change of opinion does not confer upon the Assessing Officer power to initiate reassessment proceedings u/s. 147 of the Act. The Supreme court in the case of ITO v/s. Nawab Mir Barkat All Khan Bhaadur(97 ITR 239) held that having second thoughts on the same material, an omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding under section 147 of the Act.

12 M/s. The Phoenix Mills Ltd. pertains to business activity or rental activity, all the expenses had already been examined by the AO and thereafter an opinion was formed by him. In the original assessment proceeding the AO had disallowed the following expenditure considered as incurred for the House Property Income: i) Legal Professional Charges ii) Foreign Travel iii) Brokerage & Commission. Hence, the Assessing Officer had passed the said assessment order after considering the materials on record and after due application of mind. In view of the same, the A.O. is now of the different opinion that certain additional expenses need to be allocated to rental Income. Accordingly, the contention of the A.O. to reopen the assessment is merely based on the change of opinion over the same facts and figures which were already available before the A.O. at the time of completion of the assessment u/s. 153A r.w.s 143(3) of the Act. No new materials or facts have come to the notice of the A.O. Thus, on the same set of facts and material, now there is a change in the A.O.'s opinion and this change of opinion has been taken as reason to believe that there is an escapement of income which is legally and judiciously incorrect. 22. In view of the above, we do not find any justification for reopening of completed assessment after expiry of four years from the end of relevant assessment year without any failure on the part of assessee to disclose fully and truly all the material facts necessary for the assessment. Furthermore it is clear that the AO has reopened the assessee‟s case merely on change of opinion regarding allocation of expenses which is not a legitimate reason to reopen assessment. Reliance is placed on the decision of Hon‟ble Bombay High Court in the case of Asian Paints Ltd., 308 ITR 195. Accordingly there is no justification in the order of AO reopening the completed assessment.

13 M/s. The Phoenix Mills Ltd. A.Y. 2007-08 & 2008-09 24. In these years the assessment has been reopened within the period of four years on the very same issue of allocation of expenses towards house property income, when the said issue has already been considered by AO while framing assessment u/s 153A read with section 143(3) and no tangible material was put on record by the AO to form a basis / foundation to his belief.

14 M/s. The Phoenix Mills Ltd. disallowable from the P & L A/c on account of salary/wages advertisement & sales promotion, security charges, miscellaneous expenses and maintenance to the extent of Rs. 1,78,54,493/- for the A.Y.2007-08 and 6,30,143/- for the A.Y.2008-09 respectively. The assessments u/s.143(3) r.w.s. 147 of the Act was completed on 25.03.2013 determining total income Rs.65,70,03,3601- for A.Y 2007-08 and Rs.46,06,80,500/- for A.Y. 2008-09 respectively.

15 M/s. The Phoenix Mills Ltd. us and referred by lower authorities in their orders in the context of factual matrix of the case. 30. Addition/disallowance in A.Y. 2007-08 relate to allocation of expenses on proportionate basis in the nature of salaries and wages, advertisement and sales promotion, security charges, miscellaneous expenses and repairs and maintenance expenditure respectively. Ground Nos. 2, 3, 4, and 5 for the A.Y 2008-09 relate to allocation of expenses on proportionate basis in the nature of salaries and wages, advertisement and sales promotion, security charges and repairs and maintenance expenditure respectively. The ratio adopted by AO for the allocation of expenses attributable to House Property is 12.05% for the A.Y 2007-08 and 22.54% for the A.Y 2008-09. The percentage has been arrived by working out the House Property Income as against the total revenues. The total expenses in the above mentioned ratios were allocated on proportionate basis to the house property income and were accordingly disallowed under each of the above heads except the disallowance under the head repairs and maintenance where in the A.O allocated only 10% of the expenses as relatable to business on the ground that the office space is only 10%of the total area and accordingly 90% of the expenses is disallowed being attributable to property income. The issues in these grounds are similar to ground taken in A.Y. 2009-10 in assessee‟s own case. The proportionate disallowance was confirmed by learned CIT(A) under these heads. Since the facts and circumstances are the same and for the reasons given in the appellant's own case in A.Y. 2009-10 upholding the proportionate disallowance, the disallowance made for A.Y. 2007-08 and A.Y. 2008-09 were confirmed by learned CIT(A). Assessee is in further appeal before us. 31. From the record we found that the return of income was filed by the assessee for the assessment year 2007-08 on 30.10.2007, declaring total income of Rs.59,83,19,758/-. Subsequently, the case was selected for scrutiny and notice u/s.143(2) was served on the assessee. However,

16 M/s. The Phoenix Mills Ltd. pursuant to the search proceedings in the assessee's premises in the month of February 2008, the assessee's case was centralized and notice u/s. 153A dated 03.10.2008 was served on the assessee. In response to the above notice, the Return of income was filed by assessee on 28.11.2008. The case was selected for scrutiny vide Notice u/s.143(2) dated 03.12.2008. Consequently, assessment order u/s. 153A r.w.s 143(3) dated 29.12.2010 was passed wherein certain disallowances were made by the Ld. A.O. The assessee filed an appeal against the said order before the CIT(A). Thereafter, Order u/s. 250 dated 28.09.2012 was passed by the CIT(A) granting part relief to the assessee.

17 M/s. The Phoenix Mills Ltd. 33. We also found that the Assessing Officer in the reasons recorded has held that while completing the assessment for A.Y. 2009-10 in the assessee's own case, it came to light that assessee has shown the rental income separately in the computation under the head „Income from House Property‟ by which the assessee becomes eligible for deduction u/s.24 @ 30% of the Annual Lettable Value. Simultaneously in the Profit and Loss Account the assessee has debited expenses which are relatable to income from house property and as such allocation of such expenses has not been made resulting into Income escaping assessment. Thus, the conclusion of the A.O. for A.Y. 2009-10 cannot be made a base for reopening of the assessment of the earlier assessment years where the A.O. after due consideration of facts has consciously allowed such expenditure. Thus, the conclusion of the A. 0. for A.Y. 2009-10 is nothing but a change in the A.O.'s stand taken in earlier assessment years.

18 M/s. The Phoenix Mills Ltd. assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view. The Supreme Court In the case of CIT v/s. FORAMER, FRANCE (264 ITR 566) held that mere change of opinion does not confer upon the Assessing Officer to initiate reassessment proceedings u/s. 147 of the Act.

I.T.A. No. 51/Mum/2015 and 241/M/2015 (A.Y. 2009-10)

19 M/s. The Phoenix Mills Ltd.

Sr.No. Property Area (Built up Reason for vacancy Sq.ft) 1 Boulevard 2,020 sq.ft The property was being used as a godown by the assessee during the year 2 Grand Galleria 817 sq.ft The property could not be let out as the same was under repairs during the year 3 Sky Zone 1 1,531 sq.ft This property could not be let out as the assessee could not find a competitive customer for renting out the same. The same was subsequently let out. Total 4,368 sq.ft. 41. The AO proceeded to compute the annual letting value of the above 4,368 square feet by applying an ad hoc rental value of Rs. 119 thereby

20 M/s. The Phoenix Mills Ltd. adding Rs. 62,37,504 to the total income of the assessee. A.O. ignored the appellant's submissions, and by invoking the provisions of section 23(l)(c) of the Act computed the annual letting value of the above 4,368 square feet of the vacant premises at Rs.62,37,504 by applying rate per sq.ft. at Rs.119 as per the rental agreement dated 02.07.2008 pertaining to property given on rent. Thus the AO vide its Assessment order dated 27.12.2011 added Rs.62,37,504 as ALV u/s.23(l)(c) in the total annual rent received as per the return filed. 42. By the impugned order CIT(A) confirmed the action of AO by observint that there was no indication that properties were intended to be let out. Assessee is in further appeal before us. 43. We have considered rival contentions and gone through the orders of the authorities below. With respect to the first property, Boulevard we found that this premise was used by the assessee for its own business purpose as a godown for storing records. Charging section 22 leaves out the property which assessee occupies for the purposes of any business out of the ambit for chargeability purposes and therefore, no additions can be made on account of the fact that the properties were used by the assessee for its own business purposes. Two of the above mentioned properties i.e. Grand Galleria and Sky Zone 1 could not be put on rent for genuine reasons such as unavailability of customers and some repair work was also going on in these properties. Considering the fact that the appellant is into the business of running commercial premises i.e. a mall, units of which are provided on lease to various tenants, it is obvious that the

21 M/s. The Phoenix Mills Ltd. appellant would have taken sufficient efforts to let out the property. No reasonable business person would not want to let out his premises at the loss of revenue if any opportunity exists. Hence, AO's assumption that the properties were not intended to be let out is an erroneous one. 44. From the record, we also found that two vacant premises in question were let out in the subsequent financial year 2009-10 as soon as the same were suitable for let out and competitive customers were available. It is therefore clear that such premises were intended to let out. 45. The provision of section 23(l)(c) of the Act clearly lays down that in case where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the ALV would be actual rent received or receivable by the owner in respect thereof. In this case, since the two properties were vacant for the whole year, in light of the said provisions, the appellant will be entitled to vacancy allowance. Accordingly, we do not find any merit in action of AO for making addition under Section 23(1)(c) of the Act. 46. Similar addition has also been made by the AO in the assessment year 2010-11 amounting to Rs.28,84,560/-. Following the reasoning given by us for assessment year 2009-2010 hereinabove we do not find any justification for the addition so made on account of deemed rent. Accordingly AO is directed to delete the same.

22 M/s. The Phoenix Mills Ltd. 47. Rival contentions have been heard and record perused. Facts in brief are that the Assessing Officer had bifurcated and disallowed certain expenses claimed by the assessee as being incurred in respect of the business Income by treating the same as having being-incurred towards the earning of rental Income. The additions have been made under the heads legal and professional charges, Salary and Director's remuneration, security charges, advertisement and sales promotion, repairs and maintenance as well as miscellaneous expenditure. The moot issue herein is the rationality for allocating the expenses between two heads of income - Business income vis-à-vis Income from house property.

23 M/s. The Phoenix Mills Ltd. contention that the once an immovable property is ready and leased out, no further expenses are incurred by it towards the same except for municipal taxes and routine repairs. The income structure of the assessee for the year under consideration was under :- Sr.No. Particulars Amount (Rs) 1 Sales (Cloth – Business Income) 83,50,855 2 Service Charges(Business Income) 31,21,98,241 3 Sublease income (Business income) 4,20,57,660 4 Income from Events (Business Income) 83,57,858 5 License Fees and rental income (income from House 53,05,30,216 Property)

Service Charges Break up

24 M/s. The Phoenix Mills Ltd. Particulars Amount (Rs.) Common Area Maintenance, 25,11,99,479 Marketing Promotion, other amenities viz., water drainage, supervision etc., Electricity Charges 3,65,73,471 Prop Tax received 2,25,33,242 Parking 15,51,806 Other 3,40,243 Service Charges 31,21,98,241 51. It is clear from the above that the act of leasing out the premises is only one aspect of the assessee‟s business. Once the premises have been let out, the assessee proceeds to provide another aspect of its services which is more important to the lessee and is of significant nature. As per the facts of assessee‟s case we found that the lessee of the assessee‟s premises doesn't expect mere commercial space but also expects a full bouquet of services in the space which forms crux of today‟s mall culture. To elaborate the importance of composite service it is pertinent to mention that today‟s mall have become one stop destination for all age groups for leisure, entertainment & shopping as well as food. Accordingly, the company building a mall cannot restrict its activity to build and lease the mall. In fact it has to continually strive to find ways to increase footfalls and ensure that all the lessees harmoniously co-exist and expand the business. Further, the lessee expects that the lessor suitably assists him in doing business smoothly and growing the same. 52. From the record we find that in addition to the rental activity, the assessee further provides bouquet of additional services and amenities like -

25 M/s. The Phoenix Mills Ltd. same. 5. Parking for the entire mall

26 M/s. The Phoenix Mills Ltd. payment on or before the 7th day of each month. Common Area Maintenance includes: a. Regular cleaning of the common areas of Courtyard, including the said Mall and elevation of the building outside the Licensed Premises. b. Security Services for the common areas of Courtyard, including the said Mall (not for the Licensed Premises) c. Lighting of common areas. d. Provision of chill water supply into the air- handling unit upto the Licensed Premises, charged under 1113 vi e. Regular repairs and maintenance of the said Mall. f. Expenses towards utilities as diesel and other consumables that are required for operating the said Mall. g. Cost of the mall management staff expressly working for the said Mall. It is agreed by the Parties that for any reason the maintenance charges increases above the rate contemplated herein (including the escalation in CAM charges as mentioned hereinabove), during the entire tenure of this License, then the same shall be paid by the LICENSEE without any demur or protest after details for the same submitted by the LICENSOR. ii. Electricity charges, water charges and other utilities if any payable within 3 working days of presentation of the invoice at costs. iii. Recovery of Electric Installation and Electricity supply costs - The LICENSOR has informed the LICENSEE that the LICENSOR receives High- ___________________ Tension electric supply from TATA Power and LICENSOR has installed its own equipment machinery _________ at considerable cost to convert this electricity from High-Tension to Low-Tension for use by the LICENSEE. For costs incurred towards capital equipment, running and manpower cost, return on investment for the transformers, distribution panels for the supply of electricity, provision of cables from the transformer house to the Licensed Premises, maintaining sub- station and engineers, staff and workforce for the same, transmission losses, stepping down costs from HT to LT, insurance for unforeseen circumstances and all recurring expenses for the above services and any service tax and duties thereon, the LICENSOR shall recover from the LICENSEE costs at the following rates:

Power consumed in Units Amount in Rs. (KW) 0-25 Rs. 1.25 per unit 25-50 Rs. 1.50 per unit

27 M/s. The Phoenix Mills Ltd. 50-100 Rs. 1.75 per unit Anything above 100 Rs. 2.00 per unit

iv. Marketing and Promotion expenses per square foot of the Licensed Premises shall be paid by the LICENSEE as its contribution towards costs incurred by the LICENSOR towards promoting the Mall for the period commencing from June 1, 2008 to May 31, 2011 Rs.5/- (Rupees Five only) per sq. ft on bunt up area, amounting to Rs. 11,865/- (Rupees Eleven Thousand Eight Hundred and Sixty Flue only) per month in advance subject to deduction of tax at source. Marketing and Promotional charges shall be payable from June 1, 2008 and shall become due for payment on or before the 7th day of each month. This money shall be used for the joint promotion of the LICENSEE and the other occupants at the said Mall by the LICENSOR, at ..its sole discretion. It is clarified that this will be for the overall promotion of the said Mall, generating incremental traffic/ business to all occupants. The said Mall's marketing program would be intimated to all occupants in advance, on a periodic basis. v. Parking charges: The LICENSOR is evolving a suitable system of parking for said Mall. The details of the scheme will vary and the relevant charges will be modified. Presently the LICENSOR levies a. fee of Rs.4/ - (Rupees Four only) per square foot per month, on the built up area and this shall be payable by the LICENSEE with effect from June 1, 2008. vi Recovery of Air Conditioning Usage and equipment Costs:  The cost under of running and maintaining the system by the LICENSOR in operating condition namely:  Electricity cost of the AC system  Maintenance and repair charges  Consumables  Annual Maintenance Contract charges  Replacement area air conditioning (on the basis of area). Vii. Service Tax and other taxes: It is agreed by and between the LICENSOR and the LICENSEE that any Service tax or other tax that may be levied relating to or arising out of the Licensed Premises being given on leave and license and/ or receipt of compensation or charges as set out in this license and borne and payable by the LICENSOR shall be added to the Minimum Guaranteed License Fees/ License Revenue Share payable by the LICENSEE and other fees/ charges/ costs payable in accordance with this License and the LICENSEE shall be liable to pay the same to the LICENSOR. viii. Property Taxes as leviable by the BMC or any other statutory authority amounting collectively to over Rs.5/- (Rupees Five only) per square foot. ix Late Payment, it is agreed that if the Minimum Guaranteed License Fees/ License Fees/ License Revenue Share and/ or any other charges payable under this agreement remain outstanding for a period of 10 days from the* due date,

28 M/s. The Phoenix Mills Ltd. the LICENSEE shall be liable to pay such arrears together with interest thereon @ 18% p. a. till the date of payment and if such arrears remain outstanding beyond 30 days, then the LICENSEE shall be liable to pay such arrears together with interest thereon Q24% p.a. till the date of payment The computation shall be on the basis of 360 day year comprising twelve 30 day months. It is further agreed, if such arrears remain but standing beyond 60 days, then such non-payment shall constitute a Material Breach as defined in Clause VIII (i) below. It is also agreed that in case such arrears remain outstanding beyond 60 days, then the LICENSOR shall be at liberty to disconnect all services, including electricity and water supply to the Licensed Premises." 55. We have carefully gone through the relevant clauses of agreement. It is clear from the above clauses that as per the contractual obligation the assessee is required to incur lot many expenses which would be significantly higher than the expenses that would have been incurred if the assessee would stop its activities and be just a mere lessor. Thus the work of the assessee not gets over once building constructed and given on leases. The business of the assessee is managing and maintaining the mall so the footfall of the customer will always increase. The one of the phase of building called "Palladium" was developed for international luxury brands. Palladium is a one of a kind mall in India which houses more than 90 premium brands from world's leading fashion houses. Hence, to retain the said brands the assessee had to have incurred the expenditure in relation to maintain the mall as per the requirements of the international brands.

29 M/s. The Phoenix Mills Ltd. property was at Rs 53.67 crores and the balance revenue of Rs. 86.98 crores from the other than rental. Thus the ratio of the „Rental Income‟ to the „income other than rentals‟ is 38.16%.

30 M/s. The Phoenix Mills Ltd.

"Contention raised before the lower authorities were reiterated here before the Tribunal. It was _further submitted that the business of the assessee is a consolidated business and the expenditure incurred by the assessee is incurred only for consolidating the business, therefore, the same is allowable. Attention of the Bench was drawn on pages 225 to 227 of the paper book where copies of invoices are placed. On the other hand, the ld DR placed reliance on the orders of the authorities below." "After considering the submissions and perusing the material on record, we find that the claim of the assessee raised in ground no. 2 is allowable. We have seen the invoices placed in the paper book and found that the amount paid towards professional fee for

31 M/s. The Phoenix Mills Ltd. identifying and securing client for commercial premises, fee for consultancy for marketing and technical services and professional fee rendered for planet was for business purposes and the same is consolidated business, therefore, the same cannot be segregated. Therefore, in our view, the disallowance made by the lower authorities was not justified. Accordingly, we direct the A.O. to allow the claim of the assessee in full." 62. In view of above it was argued by learned A.R that in the assessee's own case it has been held that the disallowance cannot be made when the assessee is undertaking one consolidated business since the expenses cannot be bifurcated into the various heads. Hence, it was requested that the Assessing Officer be directed to grant allowance for the expenses incurred u/s 37(1) of the Income Tax Act.

64.We have considered the rival contentions and found that disallowance of legal and professional expenses of Rs. 2,36,30,828/-, was made by AO out of a sum of Rs. 4,28,91,270/- claimed by assessee as Legal and Professional fees being incurred for business purposes.

32 M/s. The Phoenix Mills Ltd. of Rs.1,63,67,309 and deleted disallowance of Rs.44,82,147/-. Against this order of CIT(A) both assessee and revenue are in appeal before us.

Sr.No Particulars Amount (Rs.) Nature . 1. Axis Integrated Systems Ltd., 9,97,898 Consultant for getting EPCG License for exports 2. Green Circle Consultants India Pvt. 75,000 Environmental, safety standards Ltd., audit fees 3. ICRA Limited 3,25,000 Rating fees for Bank Loan 4. Imrb International 2,42,800 Market Research – Customer Satisfaction 5. Mukesh Nariandas Chhatpar – 75,000 Charges for sewage, pest control H.U.F. 6. Rajiv Saini & Associates 8,00,000 Design Consultancy charges 7. Jennifier Iyer 7,50,000 Professional Fees 8. Sujit Shetty 5,50,000 Professional Fees 9. Empress Estates 7,47,938 Professional Fees 10. I & S Enterprises 55,000 Professional Fees 11. Rahul Balaji 4,69,000 Fees for title Report

33 M/s. The Phoenix Mills Ltd. 12. Crisil Limited 4,00,000 Syndication fees for rating 13. Paradigm Esop Consultants (P) Ltd., 60,000 ESOP Consultant 14. Digital Radio (Mumbai) 8,40,800 Advertisements services of Mall Broadcasting Ltd., 15. Sunil S. Shah and Associates 75,000 Professional Fees for reviewing the construction 16. Collins Steward Inga Pvt. Ltd., 10,00,000 Advisory Services for QIP 17. Shashank Mehendale 2,22,965 Design Professional 18. Mozaic 1,00,000 Designing Charges 19. Farzana Mojgani 35,31,500 Retainer fees 20. Citigate Dewe Rogerson 10,50,000 Financial advisor Recruitment Charges 1 Access Jobs India.com 7,75,877 Fees for Tie up with the job portal 2. Catalyst consulting 3,36,494 Consultancy fees for Recruitment consultants 3. Rite Choice Consultants Pvt. Ltd., 1,50,000 Consultancy fees for Recruitment consultants 4. S & S Manpower Consultants 1,80,200 Consultancy fees for Recruitment consultants Total (B) 1,38,10,472 Other small items below 50,000 ( 16,30,951 C) Total (A+B+C) 3,11,45,604

34 M/s. The Phoenix Mills Ltd. essentially in the nature of services rendered for earning income offered under the head business income.

35 M/s. The Phoenix Mills Ltd. expenditure of Rs. 1,17,45,666 paid to M/s Jones Lang. The same is as per the consistent view followed by the Mumbai ITAT & CIT(A) in the appellants own case for the previous years.

36 M/s. The Phoenix Mills Ltd.

37 M/s. The Phoenix Mills Ltd. 76. In view of the above discussion, we found that the assessee has proved the entire gamut of the appellants business activities which is a composite one. Expenses on account of director remuneration are indivisible cost which cannot be linked to any particular activity of the assessee company. Directors of the company are managers who form the strategic vision of the company and they are responsible for the overall growth of the company. Their remuneration is incurred irrespective of nature of income earned by the assessee company. The said expenses cannot be said to be incurred for any particular activity of the assessee company.

38 M/s. The Phoenix Mills Ltd. Particular Amount Repair to Buildings 14,22,787 Repair to Machinery & Vehicles 57,71,550 Other repairs 1,08,86,611 Total 1,80,80,948 80. The treatment of the above expenses by the assessee himself and the subsequent disallowance made by the Assessing Officer in the assessment order is as follows :- Particulars Disallowance Basis Considered by assessee himself 9,95,951 70% of the repair to as pertaining to House property buildings –Suo-motu disallowed by assessee Additional disallowance 1,52,76,903 Considered by AO as pertaining 1,62,72,854 90% of total repairs. to House property Balance 10% is allowed under Business holding the same to be for the assessees own office 81. Out of the total building repair expenses of Rs. 14,22,787/-the assessee suo moto had disallowed 70% which works out to be Rs. 9,95,951/-. However, the Assessing Officer had made additional disallowance of Rs. 1,52,76,903/-. Out of which the Assessing Officer considered 90% of the total repairs which works out to be Rs. 1,62,72,854/-as pertaining to house property. Thus, only 10% was allowed under business holding the same to be for the assessee ‟s own office.

39 M/s. The Phoenix Mills Ltd. 10% stating it to be incurred for assessee‟s own office. On the one hand the AO considers salary expense as 38.16% allocable to Income from house property and on the other hand the learned AO considers entire 100% expense of repairs to building/machinery/others all allocable to income from house property. So the AO is of the view that no repairs are required for the earning service charges. How can the same even be contemplated? Just a cursory glance at the above reproduced portion of the lease agreement will reveal that the repair expense is absolutely essential to earn CAM charges.

40 M/s. The Phoenix Mills Ltd. common area. Further the said expenses are carried out for maintenance of common area which is part of the mall and not of shops/premises from which rental income is earned. The breakup of other repairs amounting to Rs. 1,08,86,611/- which clearly shows that the expenditure incurred for the purpose of common area maintenance are as under :

Particular Amount AMC on office Equipments 16,49,407 Repairs & Maintenance of furniture 33,63,060 & Fixture Repairs & Maintenance – Sundry 58,74,154 85. The breakup of sundry repairs are as under:- Date Party Debit(Rs.) Remarks 31/03/2009 Otis Elevator Company (India) 3,50,000 General service and Ltd., replacement of parts of 2 nos of elevators at Grand Gallerisa 10/11/2008 Otis Elevator Company (India) 3,30,000 Purchase of parts of Ltd., lifts and general service 09/02/2009 Image Decorators 3,10,000 Sales light, rope light, running patta, tree pipe light with wiring at Pml Diwali event 30/03/2009 Image Decorators 1,91,010 Acrylic exterior paint and towards service charge for applying on life style wall 04/03/2009 Laxmi Enterprises 1,37,747 General maintenance of Mall compound Alley between Mcdonalds & Pantaloons 86. All the items in the said ledger reflect the items of similar nature and the entire ledger was also submitted before the learned AO in the assessment proceedings. It is evident from the narration of the above entries that the said expenses have direct link between the assessee‟s business activity of Common Area maintenance. In no way the same can be linked to the earning of income from house property.

41 M/s. The Phoenix Mills Ltd. 87. Before parting with the matter it is also pertinent to note that while computing the total income, the assessee has suo-moto disallowed 70% of total repairs pertaining to the building repairs. Hence, the assessee disallowed the proportions of building repairs amounting to Rs. 9,95,951 being related to let out portions out of the total building repairs of Rs. 14,22,787. It is important to note that the same ratio is already accepted by the department in the earlier years and there was no addition made by the department on accounts of repair and maintenance. Even on the principle of the consistency, how can the assessing officer take a new view to disallow the repair and maintenance at 90%. In view of the above facts and circumstances, we direct the AO to restrict the disallowance of repairs of building to the extent of Rs.9,95,951/- as offered by assessee.

42 M/s. The Phoenix Mills Ltd. expenditure between the business income and rental income is without merit. The bifurcation has been done by the A.O. mechanically without appreciating the facts. The assessee is running a composite business, advertisement and promotional activities needs to be taken for advertising its cloth products. The A.O. could not disallow the expenditure on presumption.

43 M/s. The Phoenix Mills Ltd. allocated to a particular revenue stream as done by the AO at the assessment stage.

44 M/s. The Phoenix Mills Ltd. 97. We have considered the rival contentions and found that during the year under consideration, the assessee has debited a sum of Rs.2,23,52,092 in the profit and loss account towards Miscellaneous Expenditure. The treatment of the above expenses by the assessee himself and the subsequent disallowance made by the Ld.A0 in the assessment order is as follows :-

Particulars Disallowance Basis Considered by assessee himself as pertaining 53,90,682 As discussed below to House Property – Suo motu disallowed by assessee Additional disallowance 31,38,876 Considered by AO as pertaining to House 85,29,558 38.16% of the total property expense 98. In reply to the Assessing Officer‟s query for making disallowance in the ratio of income earned from business vis-à-vis house property, the assessee filed its submission stating that it had already disallowed a sum of Rs. 53,90,682 as Miscellaneous- Expenditure directly related to earning of house property income; however disregarding ,the submission of the assessee the .Ld. AO disallowed an additional sum of Rs. 31,38,876 in the ratio of income earned from business and house property.

45 M/s. The Phoenix Mills Ltd. of miscellaneous expenditure it can be inferred that these expenses arc incurred to carry out day to day business activities and have no nexus with, earning of rental income.

46 M/s. The Phoenix Mills Ltd.

47 M/s. The Phoenix Mills Ltd. assessee incurring security expenses for the rental Income doesn't arise.

48 M/s. The Phoenix Mills Ltd. specific bifurcation of expenses/separate accounts workings to be done. Even on the principles of the consistency the Assessing Officer was not justified in giving different treatment, other than to treatment of various expenses as given by him in earlier years. For this proposition, we rely on the judgement of Apex Court in the ease of Radhasoami Satsang v. CIT. 193 ITR 321 (SC) wherein it has been held as under : “We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where-a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee. We do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhosoanii Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961.” 110. Furthermore, reliance can be placed on the judgment of Orissa High Court In the case of CIT v. Belpahar Refractories Ltd., 128 ITR 610, wherein Court has been held as under:

"Precedent keeps the law predictable and so more or less ascertainable- A lawyer cannot always say with confidence exactly how ajudge will decide a point of law. But he can put the decision between fairly narrow limits. In any matter of novelty he will know that the boldest judge will not move more than a small distance beyond that which has already been decided." We think it unwise to deviate from the earlier conclusions and would, therefore, answer the two questions referred to us against the assessee by saying."

49 M/s. The Phoenix Mills Ltd. 111. In view of the above facts and circumstances, the Assessing Officer has not justified in disallowing the security charges by reallocating the same to income from house property.

50 M/s. The Phoenix Mills Ltd. given detailed working, however without recording any satisfaction to the effect that working given by the assessee is not correct as per Books of Accounts, the AO has made disallowance by invoking Rule 8D. As per our considered view, while making disallowance under Rule 8D, Assessing Officer is required to record his satisfaction regarding the correctness of the claim of the assessee made before him.

(a) M/s Garuiare Wall Ropes Ltd vs Addl. CITinITA 5408/M/2012 (AY 09-10) (b) CIT v Oriental Structural Engineers Put Ltd in ITA 605/2012 (Delhi High Court); (c) M/s JM Financial Ltd vs AddL CIT in ITA 4521/Mum/2012(09-10) 117. Learned AR also contended that the disallowance if at all under clause (iii) of Rule 8D is to be made, then only those investments are to be considered on which, dividend has been received during the year. In support, he relied upon following decisions:

ACB India Ltd v ACIT reported in 374 ITR 108 ACIT u M Baskaran.inITA 1717/M/2013(AY 09-10) CIT u Corrtech Energy (P) Ltd. reported in 272 CTR 262 (Guj) CIT v Holcim India (PJ Ltd. reported in 272 CTR 282 (Del) CIT v Lakhani Marketing Incl. reported in 272 CTR 265 (P&H)

51 M/s. The Phoenix Mills Ltd. 118. From the record, we found that in response to show-cause notice issued by the AO, the assessee has contended that no disallowance on account of interest can be made as the assessee has huge surplus funds for making investment and there is no direct expenditure relating to earning of the exempt income and whatever indirect expenditure has been incurred, detailed break-up of expenses which are in the nature of administrative expenses was given to the AO. It was contended that no disallowance over and above these expenses can be made. However, without giving any reasoning or pointing out any fault in the working given by the assessee, the AO has proceeded to make disallowance on account of indirect expenditure by applying the formula given in Clause-iii of Rule 8D2. However before resorting to Rule 82 (iii) nowhere AO has recorded the satisfaction or expressed in any terms that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income having regard to the accounts of the assessee.

52 M/s. The Phoenix Mills Ltd. and for its. quantification, the Assessing Officer has to first examine the accounts of the assessee and also correctness of the claim and thereafter, if having regard to such accounts and claim of the assessee, the Assessing Officer is not satisfied either with the. correctness of the claim made by the assessee or by the claim that no expenditure at all has been incurred, then only he can resort to Rule 8D. Thus, the 'satisfaction' of the Assessing Officer is a mandatory requirement to trigger the computation mechanism of Rule 8 D. 120. However, in the instant case before us assessee has given complete break-up and detailed of the expenditure, details of its account, nature of expenditure so incurred so as to indicate that expenses were incurred had direct relation with earning of business income and given reasoning as to why such expenditure cannot be held to be attributable for earning of exempt income. Under these circumstances, the AO is required under law to examine the correctness of the claim and record his satisfaction to the effect that he is not satisfied with such claim by setting out reasons in the assessment order. Making disallowance without adhering to the mandatory requirement as contained in subsection 2 of Section 14A and Rule 8D(1) will not empower the AO to make any disallowance. Under these circumstances AO is not empowered to enhance the disallowance under Section 14A over and above the amount offered by assessee. We accordingly direct the AO to restrict the disallowance to the tune of Rs. 6,25,294/-. We also found that issue is also covered by the decision of the

53 M/s. The Phoenix Mills Ltd. Tribunal in assessee‟s own case for the assessment year 2008-2009 vide order dated 19/8/2015. 121. The AO has also disallowed a sum of Rs.1,08,600/- as expenditure incurred for increase in share capital. As per judicial pronouncements laid down by Hon‟ble Supreme Court in case of Punjab Industrial Corporation, Brook Bond India, expenses incurred for increase in share capital cannot be allowed as revenue expenditure. Accordingly, we uphold the disallowance so made by the AO and confirmed by CIT(A). 122. In the revenue‟s appeal, revenue is aggrieved for addition on account of Municipal Tax which was deleted by CIT(A) after recording detailed finding and basing on his decision on the order of ITAT in assesse‟s own case for the assessment year 2001-2002, 2004-2004, 2005-2006 to 2008- 2009. The facts and circumstances during the year under consideration are same respectfully following the decision of the Tribunal in assessee‟s own case, we do not find any infirmity in the order of CIT(A) for directing the AO not to reduce municipal taxes paid in so far as same was recovered by the assessee from tenants and was not the responsibility of the assessee. 123. The disallowance made under Section 36(1)(iii) of Rs.3,53,12,937/- was deleted by the CIT(A) after having the following observation. “14.0. The facts of the case, the grounds of appeal, the stand taken by the A.O in the assessment orders and the written submissions filed by the appellant have been carefully considered. In the above submissions the appellant has given the reasons for borrowing funds though it possessed substantial own funds. In the assessment order the A.O. has not given any reasons for making the disallowance except stating that the appellant company has substantial funds in its own position and therefore, there is no

54 M/s. The Phoenix Mills Ltd. need for borrowing funds. There is nothing brought on record to hold that the funds borrowed have been invested for the purposes other than business. The A.O cannot step into the shoes of the businessman and decide on the merits of the borrowed capital vis-à-vis own capital. In view of the above the addition made by the A.O is hereby deleted. 124. We have considered rival contentions, the finding recorded by CIT(A) to the effect that funds were borrowed for the purpose of business and also invested for the purpose of business have not been controverted by DR by bringing any positive materials on record. Under these circumstances merely because assessee was having substantial own funds, will not disentitle him from claiming deduction of interest on the funds borrowed and invested for the purposes of his business. From the record, we also found that interest was paid on overdraft facility utilities by the company to maintain liquidity and there is no provision in the Act which prohibits borrowing of the funds for the purpose of business and paying interest on the same. Accordingly we uphold CIT(A)‟s order deleting disallowance of interest. 125. Next grievance of revenue relate to disallowance made on account of foreign travel expenses amounting to Rs.21,31,750/-. The disallowance so made by AO was deleted by CITA after observing as under:- 16.0 The facts of the case, the grounds of appeal, the stand taken by the A.O in the assessment orders and the written submissions filed by the appellant have been carefully considered. This issue also came up in the grounds of appeal filed by the appellant in respect of assessment years 2003-04, 2004-05 and 2005-06. The Ld. Predecessor CIT(A), vide orders No.CIT(A)-XIXIIT-297/05-06 dated 29.05.2006 for assessment year 2003-04, o.CIT(A)-XI IT-25/06-07 dated 08.08.2006 for assessment year 2004-05 and No.CIT(A)-XIXlIT-63/07 -08 dated 04.01.2008 for assessment year 2005-06 has held that the expenses incurred by the appellant on foreign travel are

55 M/s. The Phoenix Mills Ltd. allowable expenses. On a further appeal by the department, the Hon'ble ITAT, Mumbai Bench vide order ITA No.375 & 571/Mum/2006, 374 & 572/Mum/2006, 373 & 573/Mum/2006, 3541 & 4773/Mum/2005, 4144 & 4578/Mum/2006, 4889 & 5409/Mum/2006 and 1097 & 1947/Mum/2008 for A.Yrs.1997-98, 1998-99, 1999-2000, 2001-02, 2003-04, 2004-05 and 2005-06 dated 27.04.2012 has confirmed the findings given by the Ld. Predecessor CIT(A). Therefore, the expenses incurred by the appellant on account of foreign travel are hereby allowed.

56 M/s. The Phoenix Mills Ltd. 129. Assessee has taken ground for disallowance of legal and professional charges by allocating the same under the head Income from House property. 130. We have considered rival contentions and found that during the year assessee incurred an expenditure of Rs.6,17,48,026 on account of legal and professional expenses. During the assessment proceedings, the A.O. sought details of these expenses which were furnished to the A.O. The A.O. noted that out of the said expenditure, a sum of Rs.1,83,27,392 has been paid to a party known as M/s. Jones Lang Lasalle Meghraj Property Consultants Pvt.Ltd. The A.O. after going through the expenses concluded that this expenditure has been incurred on development of property to be given on rent or for property already given on rent. The A.O. further observed in the assessment order that the nature of the expenses shows that the expenditure is not incurred for the purpose of business of the assessee. Accordingly, the A.O. effected the disallowance of Rs.1,83,27,392/- and added the same to the appellant's income. Out of the legal and professional expenses of Rs.6,17,48,026, the A.O. further held that out of remaining expenditure on this account of Rs.4,34,20,634 (Rs.6,17,48,026 - Rs.1,83,27,392) is also required to be apportioned as per the revenue of the house property and other than house property. The rental income is 56.04% of the total revenues therefore 56.04% of the balance expenditure of Rs4,34,20,634 which amounts to Rs.2,43,32,923 is required to be disallowed. Accordingly, the A.O. computed the disallowance

57 M/s. The Phoenix Mills Ltd. at Rs.4,26,60,315 (directly attributable to house property at Rs.l,83,27,392 + attributable to house property in revenue proportion at RS.2,43,32,923). 125. By the impugned order CIT(A) confirmed disallowance of Rs.3,46,03,594/- both assessee and revenue are in appeal against the above order of CIT(A). 131. We have considered rival contention and found that legal and professional expenses have been incurred for whole composite business of the assessee and not for properties given on rent or being developed for giving on rent. Premises in Phoenix Mill Compound were partly let out and assessee used balance portion for its own use. The assessee receives service charges from its tenants in addition to the rent for additional services and amenities provided to the tenants along with letting out of the property. The income arising therefrom is offered as business income. The assessee has incurred the above expenses in connection with the earning of business income. The services are segregated and offered to tax under the head 'Income from Business or Profession'. The segregation of income between income from business or profession and rental income has been accepted by the Department. As discussed in assessment year 2009-2010 only expenses is directly attributable to the house property should be allocated and balance expenses is to be allowed as business expenses as the same is pertaining to the business carried on by the assessee. Similar issue has been decided by the tribunal in assessee‟s own case for the assessment year 2001-2002, 2003-2004, 2004-2005 and 2005-2006 to 2008-2009. Based on the reasoning given in the assessment year 2009-

58 M/s. The Phoenix Mills Ltd. 2010 we do not find any justification for the disallowance of Rs.3,46,03,594/- upheld by CIT(A) out of total disallowance of Rs.4,26,60,315/-. Thus out of total disallowance of Rs.4,26,60,315/- made by AO and Rs.3,46,03,594 upheld by CIT(A). We further reduce the disallowance to Rs.2,43,32,923/-. Thus we further reduce the disallowance by Rs.1,02,70,671/- as per the detailed reasoning given by us hereinabove while dealing with A.Y. 2009-2010. We further allow legal expenses of Rs.1,02,70,671/- as having been incurred for the purpose of business income. We direct accordingly. 132. The assessee is also aggrieved for disallowance made under Section 14A read with Rule 8D. As the facts and circumstances during the year under consideration are same, wherein assessee was having sufficient interest free funds available as per the audited balance sheets, which is more than the investment so made, following the decision of jurisdictional High Court in the case of Reliance Utilities Power Limited, we do not find any merit for disallowance of interest. So far as disallowance of other expenditure under Rule 8D2(iii) is concerned, following the reasoning given hereinabove, we direct the AO to restrict the disallowance to the extent of Rs.6,25,294/- in view of the fact that no satisfaction has been recorded by AO to the effect that disallowance offered by assessee is not correct as per its Books of Accounts. Accordingly following the reasoning given hereinabove in the assessment year 2009-2010 i.e., disallowance is restricted to Rs.6,25,294/-.

59 M/s. The Phoenix Mills Ltd. 133. Assessee is also aggrieved for disallowance of Rs.1,08,600/- in respect of expenditure incurred for increase in share capital. Following the reasoning given in the assessment year 2009-2010, we confirm the disallowance of expenses so made by the lower authorities. 134. Assessee is also aggrieved for allocation of staff cost and Director‟s remuneration. Following reasoning given in the assessment year 2009- 2010, we restrict the disallowance to the extent of Rs.12 lacs, keeping in view the services rendered by the staff for collecting the income from house property etc., 135. The AO has also made disallowance of Rs.3,59,29,851 on account of repairs and maintenance expenditure by observing that these are relating to income from house property. We have considered rival contention and found that assessee himself has suo-moto disallowed 70% on repairs of building. In respect of other repair charges, assessee has made specific recovery for the balance repairs i.e., repairs on machinery, furniture and other sundry repairs from all its tenants as service charges and offered as Business income which cannot be disallowed. The detailed reasoning and justification has been given by us in the assessment year 2009-2010, following the same, we direct the AO to disallowance of repairs and maintenance to @ 70% on the building repairs as offered by the assessee in its return. 136. The AO has also allocated advertisement and sales promotion of Rs.2,40,17,478/-. In view of the detailed reasoning given by us in the assessment year 2009-2010 wherein, we have observed that assessee has

60 M/s. The Phoenix Mills Ltd. made specific recovery for these expenses from all its tenants as service charges and the same was offered as Business income. The expenditure so incurred is required to be reduced only out of the business income and no separate disallowance under the head income from house property is warranted. Accordingly we direct the AO to delete the disallowance so made. 137. The AO has also disallowed miscellaneous expenses of Rs.1,74,22,197/- by observing that these are pertaining to income from house property. We found that assessee has already allocated expenses pertaining to income from house property. The department has also accepted consistently the expenditure allocated for house property from assessment year 2006-2007, 2008-2009. Following principle of consistency, we do not find any merit for making a separate disallowance of these expenses with regard to allocation of miscellaneous expenses of Rs.1,74,22,197/-. Based on the reasoning given in A.Y. 2009-2010, we direct the AO to delete the disallowance of Rs.1,74,22,197/-. 138. AO has also made a disallowance of service charges by reallocating Rs.1,73,10,577 to income from house property. We found that assessee has made a specific recovery for the same from all its tenants as service charges and offered the same as business income, the expenditure if any incurred on account of service charges is required to be reduced out of such business income and no separate disallowance under the head income from house property is warranted. Following the reasoning given by

61 M/s. The Phoenix Mills Ltd. us in the A.Y. 2009-10, we direct the AO to delete disallowance of Rs.1,73,10,577/-. 138. In the appeal filed by revenue for the assessment year 2010-2011, revenue is aggrieved for deleting disallowance of interest of Rs.3,98,89,224/-. 139. We have considered rival contention and found that disallowance of interest was deleted by CIT(A) by following his order for assessment year 2009-2010. 140. The precise observation for CIT(A) was as under: “[15.0 The facts of the case, the grounds of appeal, the stand taken by the A.O in the assessment order and the written submissions filed by the appellant have been carefully considered. In the above submissions, the appellant explained that though it possessed its own funds, they are not always available with it for use. In the assessment order the Assessing Officer has not given any reasons for making the disallowance except stating that the appellant company has substantial funds in its own position and therefore there is no need for borrowing funds. The Assessing Officer cannot step into the shoes of the businessman and direct him to use the own funds as against the borrowed fund for construction purposes. In view of the above addition made by the Assessing Officer is hereby deleted.”

62 M/s. The Phoenix Mills Ltd. 2009-2010 has not been controverted by DR by bringing any positive material on record, wherein CIT(A) has observed that bank borrowing has been utilized for the purpose of business. Following the reasoning given by us in assessment year 2009-10, we do not find any infirmity in the order of CIT(A) deleting the disallowance of interest.

63 M/s. The Phoenix Mills Ltd. find any infirmity in the order of CIT(A) for deleting the disallowance of interest of Rs.6,16,626/-. 144. Issue with regard to deletion of allocation of legal and professional charges to the extent of Rs.80,56,721/- by CIT(A) has already been dealt by us while dealing with the ground taken by assessee for deleting the disallowance of claim of legal and professional charges in ITA No.52/M/2015. Following the reasoning discussed in ITA No.52/M/2015 we do not find any infirmity in the order of CIT(A) deleting allocation of legal and professional charges of Rs.80,56,721/-. 145. AO has also made disallowance of Rs.2,30,11,224/- under Section 14A. By the impugned order CIT(A) deleted disallowance of Rs. 1,02,18,714/- by following his order for the assessment year 2009-2010 wherein CIT(A) has observed that assessee was having sufficient interest free funds from the investment so made, therefore, no disallowance of interest was warranted. We have already dealt with the issue while deciding assessee‟s appeal for the assessment year 2009-2010. Following the same reasoning, we don‟t find any infirmity in the order of the CIT(A) for deleting the disallowance of interest of Rs.1,02,18,714/-. 146. The AO has also made disallowance of interest under Section 36 (1)(iii) amounting to Rs.2,96,70,510/- which was deleted by CIT(A) after following the order for the assessment year 2009-2010. 147. We have considered rival contention and found that out of total interest expenditure of Rs.3,98,89,224/-, the AO has disallowed a sum of Rs.1,02,18,714 under Section 14A and balance interest expenditure of

64 M/s. The Phoenix Mills Ltd. Rs.2,96,70,510/- was disallowed under Section 36. We found that assessee has not claimed interest expenditure under Section 36(1)(iii), it has claimed against income from house property. Purpose of loan was to meet the immediate fund requirement of funds which arose during the course of construction of the premises which had been let out during the year under consideration. In order to substantiate the same, the assessee also submitted the Fund Flow Statement wherein it was clearly evident that the investments as well as ICDs had been deployed from the interest free surplus funds available with the assessee company and that the Bank O.D. had been utilized for meeting the immediate fund requirements which arose during the course of construction of the premises which had been let out during the year under consideration. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of interest. 148. Assessee is also aggrieved for confirming disallowance of expenditure incurred for increase in share capital amounting to Rs.1,08,600/- for the assessment year 2009-10 and similar amount in the assessment year 2010-11. 149. We have considered rival contentions, as per our considered view expenditure incurred for increase in share capital is capital in nature and the same cannot be allowed as a revenue expenditure. 150. Hon‟ble Supreme Court in the case of Punjab Industrial Corporation and Brook Bond India had clearly held that expenditure for increase in share capital cannot be allowed as revenue expenses. Accordingly, we do

65 M/s. The Phoenix Mills Ltd. not find any infirmity in the orders of the lower authorities for decline of claim of expenses incurred for increase in share capital. 152. In the result, ground No.4 taken by assessee in assessment year 2009-2010 and 2011-2012 with regard to claim of expenses incurred for increase in share capital is dismissed. 153. In the result, appeals of revenue are dismissed wherein appeals of assessee are allowed in part.

Order has been pronounced in the Court on 06.10.2016

Sd/- sd/- (PAWAN SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 06/10/2016 Karuna/Sr.P.S

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// ( Dy./Asstt. Registrar) ITAT, Mumbai