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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAJESH KUMAR, AM
स्थधयी ऱेखध सं./ PAN : AAJCS7872G अपीऱार्थी ओर से / Assessee by Shri Venkatraman प्रत्यर्थी की ओर से/Revenue by Shri J Saravaran सुनवाई की तारीख / Date of Hearing : 27.06.2016 घोषणा की तारीख /Date of Pronouncement : 04.08.2016 आदेश / O R D E R PER RAJESH KUMAR, A. M: The cross-appeals are filed by the respective parties against the order passed by the ld.CIT(A)-7, Mumbai dated 25.3.2013 for the assessment year 2007-08. Since these appeals pertain to the same 2 5130/Mum/2013 5257/Mum/2013 assessee and are being decided by this common order for the sake of convenience and brevity.
Now first we shall take up the appeal bearing ITA No.5130/M/13. The issue raised in the grounds of appeal is against the confirmation and upholding the view of the AO that the assessee‟s loss was assessable under the head “profit and gains from business or profession” as against the assessee‟s contention that the said income (Loss) was to be computed and assessed under the head “income from house property”.
Brief facts of the case are that the assessee filed its return of income on 23.10.2007 declaring total income at Rs. NIL, which was processed under section 143(1) of the Income Tax Act, 1961. The case of the assessee was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee has claimed loss of Rs.85,15,655/- under the head “income from House Property” as under :
Income from house property: Rent : Nil Less Exempt u/s 24(a) @ 30% : Nil ------ NIL Less : Interest paid Rs.85,15,655/- Income from house property Rs.(85,15,655)
The AO issued show cause notice to the assessee which was replied vide its submissions dated 27.10.2009 and 7.12.2009 which are incorporated in 3 5130/Mum/2013 5257/Mum/2013 assessment order at para 6.3. The assessee company was incorporated on 31.3.2006 as a wholly owned subsidiary of M/s Bennett Coleman and Co Ltd which purchased properties and building under the name “Times Tower” for a total consideration of Rs.15,15,71,514/- and the assessee‟s borrowed funds to the extent of Rs.9,35,00,000/- from its holding company which at the end of the year stood at Rs.9,79,39,292/-. During the year the assessee‟s profit and loss account showed loss of Rs.1,15,63,115/-. The assessee claimed interest liability of Rs.85,15,655/- in the profit and loss account besides the claiming that expenses including depreciation to the extent of Rs.30,47,420/- while there were no revenues /receipts in the profit and loss account. The assessee thereafter showed NIL income under the head Gains/Profit by adding the expenditure in the profit and loss account and calculated the income from property at (- 8515,655) by stating that the sum for which the property can reasonably be expected to let was Rs.NIL and after claiming the interest as deduction u/s 24 of the Act loss of Rs.85,15,655/- was arrived at. Thereafter the AO rejected the submissions of the assessee and assessed the said income under the head “business and profession” at NIL under the normal provisions of Act as well as under the special provisions u/s 115JB of the Act. Aggrieved by the order of AO, the assessee preferred an appeal 4 5130/Mum/2013 5257/Mum/2013 before the ld.CIT(A) who also dismissed the appeal of the assessee by observing and holding as under : “3.5 I have considered the A.O.'s order as well as appellant AR's submission. I do not agree with the submission made by the appellant. The fact of the matter is that the appellant company is incorporated with the sole objective of acquiring the immovable property for the purpose of letting it out. It is also a matter of fact that the appellant is a subsidiary of Bennett, Coleman & Co. Ltd. and the entire property was purchased by taking unsecured loan from M/s.Bennett, Coleman & Co. Ltd. The appellant has shown interest loan of Rs.85,15,695/- in its profit and loss account and other expenses including depreciation amounting to Rs.30,47,420/-. Correspondingly, no business receipt has been shown in its profit and loss account. Further, it is seen that the appellant in its own submission before the Ld. A.O. has stated that the appellant company acquired residential accommodation and there was no electricity or water connection, therefore, the property could not reasonably be expected to be let out. The appellant is now contesting that the property is to be treated as income from rentals and the annual value of the property may be considered as nil. Therefore, these need to be allowed against 'Income from house property'. The appellant, is therefore, contesting that despite the objections, the income is to be treated as 'Income from house property'. However, the appellant had itself stated that it is income from business and not income from house property. Without prejudice to the foregoing, even if the contention of the appellant is accepted which is not acceptable, the property cannot be said to be lettable as the appellant had acquired the property only in the month of January, 2007 wherein only the occupation certificate is received. The contention of the appellant that the property was lettable from the date of acquiring occupation certificate cannot be accepted as it is common knowledge that after occupation certificate a lot many work needs to be done. The first thing is to apply for an electricity connection and water connection, then the other minor things which are required to be done in a residential accommodation is a matter of common knowledge which cannot be done in two months. Therefore, the property was not lettable for the year under consideration and the entire expenses at best can be called as pre-operative expenses and cannot be allowed in the year under consideration. The ALV of the property cannot be taken as nil as the property cannot be 5 5130/Mum/2013 5257/Mum/2013 reasonably expected to let out in the year under consideration. Therefore, the submissions of the appellant are rejected and the addition so made by the learned A.O. is accordingly upheld. In case of pre-operative expenses, if the income is held as income from business, the business of the appellant is not set off in the year under consideration; the same cannot be allowed u/s.37 of the Income-tax Act. Thus, appellant's these grounds of appeal are accordingly dismissed.”
4. In support of his contentions, the ld.AR placed strong reliance in assessee‟s case in and 5193/Mum/2013 (AY-2007-08) dated 24.6.2016.
5. On the other hand, the ld. DR strongly objected to the arguments of the ld. AR and submitted that in the assessee‟s case, the rent received was treated as income from house property but in fact, the rent received by the assessee as income from business or profession and hence, the order passed by the ld.CIT(A) be uphold and the appeal of the assessee be dismissed. In support of his contention, the ld. DR placed reliance on the following case law: a) Civil Appeal No.4494 of 2004 in M/s Chennai Properties and Investments ltd V/s CIT order dated 9.4.2015 (2015 ITR (373) ITR 673 (SC)
6. We have heard the rival contentions and perused the material placed before us including the orders of authorities below and judicial decisions relied upon by the parties. At the outset, the ld.AR vehemently submitted that the case of the assessee is fully covered in its favour by the decision of –co-ordinate bench of the Tribunal in the case of Vaidehi Estates Ltd V/s 6 5130/Mum/2013 5257/Mum/2013 DCIT(OSD) (AY-2007-08) dated 31.7.2015 which was passed in the group cases of the assessee. On perusal of the order of the Tribunal, we find that the identical issue was decided by the co-ordinate Bench of the Tribunal in favour of the assessee. The relevant portion of the order, for the sake of clarity is reproduced below : “8. Apropos the issue as to whether the assessee‟s income is to be computed as „income from house property‟ as claimed by the assessee, or under the head „profits and gains of business or profession‟, as held by the ld. CIT(A), Section 22 of the Act provides that the annual value of the property consisting of any building or land appurtenant thereto, of which, the assessee is the owner, shall be chargeable to tax under the head „income from house property‟. In this regard, it is of little moment that the assessee owner is a company formed with the object of acquiring immovable property to be let out, as is the case herein. It has been held to this effect in “East India Housing & Land Development Trust Ltd. vs. CIT”, 42 ITR 49 (SC) and in “S.G. Mercantile Corporation Pvt. Ltd. vs. CIT”, 83 ITR 700 (SC). Both these decisions were cited by the assessee before the ld. CIT(A). However, the ld. CIT(A) has neither dealt with these decisions, nor quoted any decision to the contrary. In view of these decisions, the observation of the ld. CIT(A) that the assessee had itself stated that the income was from business and not from house property is of no consequence at all. It is for the taxing authority to decide such issues correctly and the claim of the assessee, either way, is not decided. Also, it is not of any detriment to the assessee that as observed by the ld. CIT(A), while acquiring the property, only occupation certificate was received by the assessee and electricity or water connection, inter alia, having been applied for, the property was not rendered lettable. This is also in view of the fact that in its meeting on 15-7-2007, the Board of Directors of the assessee company resolved that attempt be made to let out the property as a bare-shell, without making any renovation or furnishing. This fact has been taken note of by the ld. CIT(A) at page 4, para (d) of the impugned order.
9. For the above discussion, the grievance of the assessee is found to be justified and is accepted as such. The order of the ld. CIT(A) in 7 5130/Mum/2013 5257/Mum/2013 this regard is cancelled and it is held that the income of the assessee is to be computed as „income from house property‟. The assessee‟s claim in this regard is, thus, allowed.”
In the case of M/s Shubham Properties Ltd (supra), the Tribunal has held as under : “6. Ld. Authorized Representative before us, pointed out that ITAT „F‟ Bench in case of Vaidehi Estates Ltd. Vs. DCIT (OSD) in & 5255/Mum/2013 on similar issue decided the same in favour of assessee. Nothing contrary was brought to our knowledge on behalf of Revenue. Facts being similar, so following same reasoning, we hold that income assessee is to be computed as „Income from House Property‟. Accordingly, assessee‟s claim in this regard is allowed.”
The decision relied by the ld.DR is distinguishable and therefore not applicable to the present case. In view of the decision of the Tribunal in group cases of the assessee, we are of the considered view that the facts of the assessee‟s case is fully covered by the decision of the Tribunal and therefore, respectfully following the decision of the same allow the appeal of the assessee by setting aside the order of ld.CIT(A) and direct the AO to treat the income of the assessee as “Income From House Property”. Appeal filed by the assessee is allowed.
Now, we shall take up the appeal of the revenue being ITA No.5257/Mum/2013 10. Ground of appeal
raised by the revenue is as under :
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing carry forward of losses u/s 71B of the IT Act without appreciating the fact the ld.CIT(A) himself has confirmed the expenses as “Pre-operative expenses” and such expense can be claimed u/s 35D of the IT Act only”.
8 5130/Mum/2013 5257/Mum/2013
We find that the income in question is treated as income from house property. The ld. CIT(A) while deciding the issue of deduction u/s 71B is decided this issue vide para 3.5 of appellate order in favour of the assessee by holding as under : “3.5……. In case of pre-operative expenses, if the income is held as income from business, the business of the appellant is not set off in the year under consideration; the same cannot be allowed u/s.37 of the Income-tax Act. Thus, appellant's these grounds of appeal
are accordingly dismissed.”
12. At the time of hearing, the ld.AR invited our attention to the decision of Co-ordinate Bench of the Tribunal in assessee‟s own case in (Assessment Year: 2007-08) dated 24.6.2016 by which the Tribunal has dealt with similar issue and decided the same in favour of the assessee. The ld. AR prayed that similar view be taken in this year also, for which the ld. DR did not object.
13. On perusal of the order of Tribunal (comprising of same Bench) in vide para 6.1, the issue has been decided in favour of the assessee. The para 6.1 for the sake of ready reproduced below as under : “6.1 Regarding departmental grievance, once we have held that income is to be assessed as „Income from House Property‟ as above, on the basis of order of CIT(A) this issue is upheld”
9 5130/Mum/2013 5257/Mum/2013 14. Respectfully following the Tribunal order in assessee‟s own case, we dismiss the appeal of the revenue. 15. In the result, the appeal of the assessee is allowed and that of revenue stands dismissed. Order pronounced in the open court on 04.08.2016.