DCIT 24(3), MUMBAI vs. GUNDECHA BUILDERS, MUMBAI

This appeal has been filed by the revenue against order dated 23/07/2014 passed by the Ld CIT(Appeals)-34, Mumbai for the assessment year 2011-12, whereby the Ld. CIT (A) set aside the findings of AO in assessment order dated 19.3.2014 while deciding the first appeal filed by the assessee.

2). Brief facts of the case are that the assessee a Builder & Developer, filed its return of income for the Asst. year 2011-12 declaring the total income of Rs. 14,02,03,330/-. The AO completed the assessment u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’), determining the total income of Rs. 16,43,11,280/-, after inter alia making addition of Rs. 1,77,33,629/-as business income, Rs. 2,49,289/- as increased profit, Rs. 16,31,000/- addition made on account of disallowance of 1/3rd Security, Legal professional and staff expenditure, Rs. 9126/- addition on account of disallowance made u/s 14A read with Rule 8D. In appeal, the Ld. CIT(A) deleted all the additions except addition made on account of disallowance made u/s 14A read with Rule 8D as the Ld. CIT(A) restricted the disallowance to Rs. 755/-.

3). The revenue has challenged the impugned order on the following effective grounds of appeal:-

1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the lease rent income of Rs. 1,77,33,629/- as income from house property as against business income held by the A.O. by ignoring the decision in the case of Indian City Properties Ltd. Vs. CIT 55 ITR 262(Cal) and also ignoring the fact that the property was held as trading asset and not as investment.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting addition of Rs. 22,49,289/- on account of allocation of common expenditure to poisar project and Sakinaka ‘D’ project by ignoring the fact that said expenses were incurred by the assessee firm for running its common office and hence attributable to all the projects.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 16,31,000/- made by the Assessing Officer being 1/3rd of security expenses and salary expenses ignoring the fact that the assessee has not furnished the required documentary evidence to substantiate its claim for expenses incurred.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of Rs. 9,126/- made u/s 14A r.w.r.8D to Rs. 755/- only, being 5% of dividend income, ignoring the fact that addition of Rs. 9,126/- was made as per formula given in Rule 8D of the I.T. Rules.

5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest income as Business income instead of Income from Other Sources ignoring the fact that interest earned by the assessee has no nexus with the business activities of the assessee.

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest income as Business income instead of Income from Other Sources ignoring the fact that the ITAT in the case of M/s Mamta Enterprises vide dated 30/12/2011 has decided the issue in favour of the department.”

4). Before us the Ld. Departmental Representative (DR) submitted that the Ld. CIT(A) has wrongly held the lease rent income of Rs. 1,77,33,629/- as income from house property contrary to the findings of the AO. The Ld. CIT(A) has wrongly deleted the addition of Rs. 2,49,289/- made on account of allocation of common expenditure to Poisar Project and Sakinaka ‘D’ project by ignoring the fact that said expenses were incurred by the assessee for running its common office and hence attributable to all the projects. The Ld. CIT(A) has further wrongly deleted the addition of Rs. 16,31,000/- made by the Assessing Officer being 1/3rd of security expenses and salary expenses ignoring the fact that the assessee has not furnished the required documentary evidence to substantiate its claim for expenses incurred. Further the Ld. CIT(A)has wrongly restricted the disallowance of Rs. 9,126/- made u/s 14A r.w.r.8D to Rs. 755/- only, being 5% of dividend income, ignoring the fact that addition of Rs. 9,126/- was made in accordance with the law in Rule 8D of the I.T. Rules. The Ld. CIT(A) further wrongly treated the interest income as ‘Business income’ instead of treating the same as ‘Income from Other Sources’ ignoring the fact that interest earned by the assessee has no nexus with the business activities of the assessee.

5). On the other hand the Ld. Counsel for the assessee submitted that the case of the assessee is squarely covered by the decision dated 5.1.2016, rendered by the ITAT, Mumbai in assessee’s own case, for the Asst. year 2010-11, therefore, the same may be decided accordingly.

6). We have heard the rival submission and also perused the material placed on record. We notice that the ground No. 1 of this appeal is identical to ground No. 1 of the appeal filed by the revenue in assessee’s own case and the Co-ordinate Bench has decided the identical issue in favour of the assessee. The relevant portion of the order reads as under:-

“5. We have considered the submissions of the parties and perused the material available on record. Learned Representative of both the parties have agreed before us that the issue in dispute has been decided in favour of the assessee by the Tribunal in assessee’s own case for the assessment year 2009–10. On a perusal of the aforesaid order of the co–ordinate bench of the Tribunal in ITA no.762/Mum./ 2013 and ITA no.1697/Mum./2013, for the assessment year 2009–10, order dated 17th April 2015, we note that the Tribunal, while deciding identical dispute, held as under:– “6. The next grievance of the Revenue relates to CIT(A)’s action for treating rental income as income from house property. The issues has been decided by the Tribunal in assessee’s own case in the assessment year 2008-09, wherein vide para 6, the Tribunal has held as under:-

6. We have considered rival contentions and found from the record that the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Sambhu Investment (P) Ltd. Vs. CIT (2003) 263 ITR 143 (SC), wherein the Hon'ble Apex Court has held that wherein main intention of letting out the property or any portion thereof is to earn rental income, the income is to be assessed as income from house property and where the intention is to exploit the immovable property by way of complex commercial activities, the income should be assessee as income from business. Applying this proposition to the facts of the instant case, we found that the assessee has let out the property to earn the rental income. Accordingly, we do not find any infirmity in the order of CIT(A) for treating the lease income as income from house property.

As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal, we do not find any infirmity in the order of CIT(A) for treating the lease income as income from house property.”

7). Since the identical issue has been decided in favour of the assessee in assessee’s own case aforesaid, respectfully following the decision of the co- ordinate Bench of the Tribunal, we uphold the order of the Ld. CIT(A) on this issue. Ground No. 1, of appeal is therefore dismissed.

8). Ground no. 2 of this appeal is identical to ground no. 3 of the appeal filed by the revenue in assessee’s own case in and the co-ordinate Bench has decided the same in favour of the assessee and against the revenue. The relevant portion of the order reads as under:-

“15. We have considered the submissions of the parties and perused the material available on record. At the outset, learned Representative of both the parties admitted that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for the assessment year 2009–10 as well as preceding assessment year. On a perusal of the order of the co– ordinate bench of the Tribunal, in assessment year 2009–10, as referred to above, it is seen that the Tribunal following its decision in assessee’s own case for the preceding assessment year held as under:–

“4.3. I have carefully considered the above submissions, paper book and the material available on record. Identical issue arose during AY.2006-07. The CIT(A) had given relief to the appellant. Against the order of the CIT(A), the department had filed an appeal before the ITAT. The findings of the IT A T is in para 11 of its order which is reproduced as under- "11. We have heard the rival submissions and perused the records placed before us. It is submitted by the learned counsel for the assessee that the assessee had maintained two separate accounts for Poiser as well as Sakinaka projects and the CIT(A) gave a finding that the assessee had maintained two separate accounts. The learned CIT(A) has given a further finding that the Assessing Officer presumed that the assessee might have debited the expenditure relating to Poiser project to Saki Naka project to get the benefit u/s. 80IB(10) because the project is fully eligible for deduction. It is a fact that the assessee has already debited expenses for Poiser project of Rs.1,05,11,664/- and the Assessing Officer has not pointed out any defect in the books of account submitted by the assessee. In view of the above, we do not find any infirmity in the order of the CIT(A) and uphold the same. The order of the CIT(A) was uphold by the ITAT. Since the facts and circumstances are identical and the projects being the same, respectfully following the Hon'ble ITAT's decision, I direct the Assessing Officer to delete the addition made. This ground of appeal is allowed.”

5.3 I have gone though the contents of the impugned assessment order as well as arguments & submissions of Ld. Authorized Representative of the appellant along with material available on record Including the Hon'ble ITA Ts orders In appellant's own case (supra) I have also gone through the chart furnished by the appellant It Is clear from the details of expenses furnished that separate expenditure was debited under all heads of Poiser Project and the Assessing Officer has also not pointed out a single instance in his order as to which expenditure was taxable income. He has worked simply on presumption without bringing any evidence on record. On the other hand, the appellant has maintained separate books of accounts and bank account for the Poiser Project wherein no discrepancy was pointed out by the Assessing Officer So in the absence of any conclusive evidence and investigation done by the Assessing Officer and in view of the submissions made by the appellant, I am of the view that the Assessing Officer was not justified In allocating the expenditure of Rs. 38,75,050/- to Poiser Project wherein expenditure of Rs. 17,26,112/- was already debited by the appellant before making re-allocation or disallowance. On perusal of Profit & Loss Account submitted regarding 'D' wing of Sakinaka. Assessee has debited the expenses to the tune of Rs. 6,88,12,548/- and all these has been added to the closing stock. Therefore, addition of Rs. 81,37,369/- made by the Assessing Officer to 'D' wing of Sakinaka without pointing out any reason is not justifiable. The Assessing Officer should have pointed out the defects in the books of accounts of the appellant and the items of expenditure which were diverted for reducing the taxable income. Instead of that, the Assessing Officer has simply made reallocation of expenses of the project which cannot be approved and confirmed in the absence of any evidence. Further respectfully following the decisions in appellant's own case of Hon'ble ITAT Mumbai, G Bench, for A.Y.2006–07 and the reasoning of my Ld. Predecessor's appellate order for A.Y.2007–08, the Assessing Officer is directed to allow deduction as claimed by the appellant to maintain the judicial discipline in the facts and circumstances of the instant case as discussed above. Accordingly this ground of appeal is also allowed.

14. We have considered rival contentions. As the facts and circumstances during the year under consideration are pari materia to the facts and circumstances as considered and decided by the Tribunal in assessee’s own case, which has been elaborately referred by the CIT(A) in his impugned order Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of allocation of common expenditure.”

As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal as quoted above, we confirm the action of the CIT(A) with regard to allocation of expenditure.”

9). Since the identical issue has been decided in favour of the assessee in assessee’s own case aforesaid, respectfully following the aforesaid decision of the co-ordinate Bench of the Tribunal, we uphold the order of the Ld. CIT(A) on this issue. Ground No. 2, of the appeal is accordingly dismissed.

10). Ground no. 3 of this appeal is identical to the common issue raised in ground no. 6,7, & 8 of the appeal filed by the revenue in assessee’s own case in The co-ordinate Bench has decided the same in favour of the assessee. The relevant portion of the order reads as under:-

“32. We have considered the submissions of the parties and perused the material available on record. At the outset, the learned Representative for both the parties, stated before us that the issue in dispute is covered by the decision of the Tribunal in assessee’s own case for the assessment year 2009–10. On perusing the order of the co–ordinate bench as referred to above, we find that the issue has been decided in favour of the assessee by holding as under:– “14. The CIT(A) has also confirmed the disallowance of Rs.8,51,418/- being 1/3rd of expenses on security, legal fees and professional fees. We found that these expenditures were incurred in respect of properties, which was in dispute. Such expenses were indirect expenditure and item of profit and loss account, the same cannot be added to work-in-progress as same are indirect expenditure. Even the provisions of Section 145 which provides method of accounting also states that indirect expenditure is to be deducted to profit and loss account and the same is not to be added to the value of closing stock as per AS2. Accordingly, we do not find any merit in the action of the lower authorities for disallowing Rs.8,51,418/- being 1/3rd of the expenditure incurred on security, legal fee and professional fee.

12). Ground no. 4 of this appeal is identical to ground no. 5 of the appeal filed by the revenue in assessee’s own case in and the co-ordinate Bench has decided the same in favour of the revenue and against the assessee. The relevant portion of the order reads as under:-

“25. Briefly stated the facts are, in the course of assessment proceedings, Assessing Officer, noticing that the assessee has earned exempt income by way of dividend of ` 15,100, asked the assessee to explain why expenditure relating to earning of such income shall not be disallowed as per section 14A of the Act. After considering the explanation of the assessee and finding that the assessee has not incurred any direct expenditure relating to interest disallowed an amount of ` 9,126, being 0.5% of average investment by applying rule 8D(2)(iii) r/w section 14A of the Act. Assessee challenged the disallowance before the learned Commissioner (Appeals).

13). The identical issue has been decided against the assessee in assessee’s own case aforesaid. So, respectfully following the decision of the co-ordinate Bench of the Tribunal, we uphold the disallowance made by the AO. Ground No. 4 of the appeal is accordingly allowed.

14). Ground no. 5 & 6 of this appeal is identical to ground no. 4 of the appeal filed by the revenue in assessee’s own case in and the co-ordinate Bench has decided the same in favour of the assessee and against the revenue. The relevant part of the order reads as under:-

“22. We have considered the submissions of the parties and perused the material available on record. The dispute in the aforesaid ground is confined to the issue whether interest income earned on utilization of surplus business fund is to be assessed under the head “Business” as claimed by the assessee or as “Income From Other Sources” as held by the Assessing Officer. The learned Commissioner (Appeals) has decided the issue in favour of the assessee by following the orders of the Tribunal passed in case of two other sister concerns of the assessee viz. Minal Enterprises and Mamta Enterprises wherein the Tribunal upheld assessee’s claim that interest earned on surplus business funds is to be assessed under the head “Business”. Though, we agree with the learned Departmental Representative that the co– ordinate bench of the Tribunal in Mamta Enterprises for the assessment year 2005–06 and 2006–07 has decided the issue against the assessee but fact remains that subsequently the co–ordinate bench of the Tribunal in the case of same assessee i.e., Mamta Enterprises while deciding the appeal for the assessment year 2004–05 in ITA no.8713/Mum./2010, order dated 27th June 2013, has decided the issue in favour of the assessee by following the decision of the co– ordinate bench in case of another sister concern Minal Enterprises vide ITA no.8185/Mum./2010, dated 16th April 2013. The observation of the Tribunal is as under:–

2. At the outset it was pointed out by Ld. A.R that similar appeal was filed by the revenue in the case of the group concern namely M/s. Minal Enterprises and Tribunal vide its order dated 16/04/2013 in has upheld the order of Ld. CIT(A). A copy of the said order was placed on our record and a copy was also given to Ld. D.R. It was observed that the ground raised by the revenue in the present case is exactly similar to the aforementioned group case. For the sake of completeness the said order is reproduced below:

“The present appeal is directed against the order dt.14.10.2010 passed by the CIT(A)-34, Mumbai. Following Grounds of Appeal have been raised by the Assessing Officer (AO)

1. “On the facts & in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to treat the interest income of the assessee as business income instead of income from other sources ignoring the fact that the case is covered by the decision of High Court, Bombay in the case of Shree Krishna Polyster Ltd. Vs. Deputy Commissioner of Income tax (274 ITR 271).

2. On the facts and circumstances of the case and in law, the Ld. CIT(‟4} erred in allowing the interest paid on unsecured loans against the above stated interest income considering it to be business income.

The appellant prays that the order of the CIT‟A,) on the grounds be set aside and matter may he decided according to law. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.”

2.1..Effective Ground of the appeal is about treating the interest income amounting to Rs. 1,92, 00,094/- earned by the assessee under the head “business income‟ and not under the head „income from other sources‟ .During the assessment proceedings, AU found that assessee had claimed that income earned by it for the AY under consideration should be assessed as business income and interest paid by it should be allowed u/s.57 of the Act. After considering the facts of the case AO held that income of the assessee was to be taxed under the head income from other sources. He further held that interest paid by the assessee was not allowable either u/s. 36(i)(iii) or u/s 57 of the Act.

2.2. Assessee preferred an appeal before the First Appeal Authority (FAA).After considering the submissions of the assessee and the assessment order he held that the same issue in the case of sister concern M/s. Mamta Enterprises (ME) for the same assessment year had arisen before his predecessor and it was decided in favour of the appellant, that same AO had passed the orders for M/s. ME for AYs. 2005-06 & 2006-07 as well as for the assesse firm, that there was no material difference in either the action of the AO or the facts and circumstances of both the cases. Following the Order of his predecessor in the case of M/s. ME and relying upon the judgments of the Hon‟ble High Courts of Karnataka and Bombay in the cases Satish Chandra & Co.(234 ITR 70) and Lok Holdings(308 ITR 356) decided the issue in favour of the assessee. He held that interest earned on surplus funds of business should be assessed as business income and not as income from other sources. He further directed the AO to allow the interest paid against the same, accordingly as per the provisions of Act.

2.3. Before us, Departmental Representative (DR) supported the order of the AO. Authorised Representative (AR) submitted that AO had treated the interest-income as business income in the case of M/s.ME, the sister concern, on identical facts, that assessee was engaged in the business of advancing money and the interest received by it was to be assessed under the head business. He relied upon the judgment of jurisdictional High Court delivered in the case of Lok Holdings (supra).The brief relevant facts of the case are that M/s. Lok Holdings, a firm involved in the business of development of properties, received monies in advance from customers intending to purchase flats in the properties as developed by it. These monies were of the nature of booking! advances. Since these monies received could not be immediately utilised for the business of the firm, so surplus amounts from such money received was temporarily invested with banks and other concerns. Such deposits with accrued interest and same were assessed by the AU as income from other sources. FAA and Tribunal held that interest income was to be assessed as business income. Revenue preferred an appeal before the Hon’ble High Court. While deciding the question of law as whether the interest income earned by the assessee was assessable as „income from business‟ or as „income from other source Hon’ble Court dismissed the appeal of the Revenue. We find that the facts of the case under consideration are similar to the facts of M/s. Lok Hodings. We also find that on similar facts AO; in the case of the sister concern; has held that the interest- income had to be assessed as business income. Respectfully, following the judgment of the Hon‟ble Jurisdictional High Court delivered in the case of Lok Holdings we confirm the order of the FAA. Grounds of appeal filed by the AO are decided against him.

As a result appeal filed by the AO stands dismissed.

16). In the result appeal filed by the revenue for the Asst. year 2011-12 is partly allowed.