JUPITER CONSTRUCTION,MUMBAI vs. DCIT 19(3), MUMBAI

The first grievance of the assessee relates to the disallowance of business expenses of Rs.5,19,743/-.

Rival contentions have been heard and record perused. The facts in brief are that the assessee is engaged in the business of construction and it did carry out business

(A.Y. 2010-11) Jupiter Construction vs. Dy. CIT activities during the year under consideration. The firm had completed its project at linking road, Bandra, Mumbai. It was looking out for other development projects and negotiations were held with interested parties, but due to general lull in the real estate market, no deal was struck. During the year no sale of completed units is realized due to adverse market conditions and general recession in the real estate market all over Mumbai. As the firm was not getting buyer, unsold stock has been put to use in the business by way or renting the same. Thus, the unsold stocks have been exploited commercially in view of the changed business scenario and it cannot said that no business activity is carried out by the assessee. Thus, the business of the assessee was very much in existence and it cannot be said that there was no business activity carried out by the assessee. We found that the business of the assessee firm was in temporary lull during which period the assessee exploited its commercial assets for earning income. In order to be a business income within the meaning of Sec.28, there must be evidence of exploitation of commercial asset. In this case the above criteria exist, because the assessee has an establishment, incurred expenses on retaining its registered office and to survive exploited its commercial assets during the lull in the business. Moreover, the AO did not bring on record any evidence to establish that the assessee had intention to close down the business or it has already closed down its business activities. Therefore, simply on the reason that there was no business receipt during the year, the AO was not justified in disallowing the loss incurred by the assessee. Reliance can be placed on the decision of Delhi Bench in the case of ITO vs. Mokul Finance (P) Ltd. [2007] 110 TTJ 445 (Del) and Hon’ble Calcutta High Court decision in the case of CIT vs. Ganga Properties Ltd. [1993] 199 ITR 94 (Cal).

In view of the above, we do not find any justification for disallowance of the expenditure debited in the profit and loss account, merely because there was lull in the market and the assessee has not earned any business income during the year.

Ground nos. 2 and 3 was not pressed by the ld. AR, the same is therefore dismissed in limine as not pressed.

Ground no. 4 relate to disallowing the cost of improvement of property from short term capital gain (STCG).

Rival contention have been heard and record perused. From the record we found that assessee firm had claimed cost of improvement being compensation paid. It was explained to the AO that the said amount was paid to the licensee with a commitment that it stay in the licensed premises for minimum lock in period and will not terminate the leave and license agreement before that date. Due to adverse market conditions, assessee was finding it difficult to get buyers for this property. Therefore, as incentive to the prospective buyer, assessee had to enter into this arrangement with licensee. With this kind of arrangement, the prospective buyers were assured rental income which results in higher probability of sale of units in the depressed market. In fact, said unit was ultimately sold to one Mr. Manoj//Gwalani. Thus, compensation paid by the assessee firm was wholly and exclusively in connection with the sale of property and hence very much allowable while computing the capital gain. Accordingly the A.O. is directed to allow the compensation so paid while computing STCG.

Ground no. 5 pertains to disallowance of brokerage paid towards sale of property against the STCGs. Facts in brief are that the assessee has paid brokerage of Rs.7,70,000/- to M/s. Western India Developers towards sale of office premises no. 101, 102 and 202 on 1st and second floor. The assessee has furnished the debit note and TDS certificate before the A.O. and ld. CIT(A). However, the same was disallowed while computing the short term capital gains. We found that the assessee has paid the brokerage in connection with the sale of office premises, the income from which has been offered for short term capital gains. Hence, the same is allowable while computing the short term capital gain. Thus, the disallowance of brokerage paid was unjustified. Accordingly the A.O. is directed to allow the same. In the result, the assessee’s appeal is allowed in part. 9.