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Income Tax Appellate Tribunal, MUMBAI “E” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JUDICIAL & SHRI RAJESH KUMAR.
These cross appeals have been filed by Revenue and assessee against the order of Commissioner of Income-Tax (Appeals)-7, Mumbai, dated 25.03.2013 for A.Y. 2007-08.
In Revenue has filed the appeal on the following ground:
“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 I.T. Act without appreciating the fact that the Ld. CIT(A) himself has confirmed the expenses as “Pre-operative expenses” and such expense can be claimed U/s.35D of the I.T. Act only.”
In , assessee has filed the appeal on the following grounds:
“1. On the facts and circumstances of the case and in law, the Learned Commissioner (Appeals) erred in upholding the view of the Assessing Officer (“AO") that the Assessee’s income (Loss), is to be computed under the head “Profits and Gains of Business and Profession”. 2. On the facts and circumstances of the case and in law, the assessee submits that the income (Loss) is to be computed under the head “Income from House Property”.”
Assessee purchased an immovable property on 6th floor of the building “Times Tower” at Kamala Mills Compound, Lower Parel, Mumbai, that was registered in the name of assessee in May 2006. Property was purchased out of unsecured loans taken by assessee from its holding company on which interest & 5193/Mum/13 A.Ys. 07-08 [DCIT vs. M/s. Shubham Properties Ltd.] Page 3 @ 8% per annum amounting to Rs.85,15,695/- was paid by assessee during the year. Though property was registered in the month of May 2006, the Occupation Certificate was obtained by builder from the Municipal Corporation of Greater Bombay on 28th December 2006 for occupying the building and forwarded same to assessee in January 2007.
4.1 Assessee’s Board of Directors, at their meeting held on 15th February, 2007, resolved that attempts be made to let out the property as a bare-shell without making any further renovation/furnishing. Assessee approached an estate agent for identifying potential tenants thereafter but the property was only let out in the subsequent financial year and hence no rent was received or receivable in respect of the said property. While filing its return of income, assessee computed the annual value of the said property under the head “Income from House Property” at Rs.Nil and claimed a deduction of interest paid on loan u/s.24 of the Act. Accordingly, a loss of Rs.85,15,655/- was computed by assessee under the head “Income from House Property” and assessee claimed that the same be carried forward u/s.71B of the Act.
4.2 Assessing Officer was of the opinion that since assessee was formed with the object of acquiring immovable property to be let out, and the said property had not been let out, assessee had not commenced business and consequently all the expenditures including interest is to be treated as pre- operative expenditure. He, therefore, did not accept the assessee’s contention that the income is to be computed under & 5193/Mum/13 A.Ys. 07-08 [DCIT vs. M/s. Shubham Properties Ltd.] Page 4 the head “Income from House Property” and consequently disallowed the interest as a pre-operative expenditure and thereby also disallowed the claim of assessee for carry forward of loss under the head “Income from House Property” as provided for in Section 71B of the Act.
Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) observed that assessee was incorporated with the sole objective of acquiring the immovable property for the purpose of letting it out. It is not is dispute that assessee 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 assessee 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. The stand of assessee has been that the property was 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'. CIT(A) observed that assessee 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 assessee was accepted which was not acceptable, the property couldnot be said to be lettable as assessee had acquired the property only in the month of January, 2007 wherein only the Occupation & 5193/Mum/13 A.Ys. 07-08 [DCIT vs. M/s. Shubham Properties Ltd.] Page 5 Certificate was received. He did not agree to accept the contention of assessee that property was lettable from the date of acquiring occupation certificate, since after occupation certificate a lot of work needs to be done, such as, electricity connection, water connection and so many other things. According to CIT(A), 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 ALY of the property could not be taken as nil as the property cannot be reasonably expected to let out in the year under consideration. Therefore, the submissions of assessee was rejected and addition made by Assessing Officer was upheld. In case of pre-operative expenses, if the income is held as income from business, the business of assessee was not set off in the year under consideration, the same could not be allowed u/s.37 of the Act. Thus, this ground of assessee was dismissed.
5.1 In alternative, assessee submitted that since Occupation Certificate was only received in January 2007, based on the Municipal taxes determined as payable by the Municipality, the annual value for 3 months, namely, January 2007 to March 2007, may be considered at Rs.5,52,000/- in computing income under the head “Income from House Property”, which was dismissed by Assessing Officer and confirmed by CIT(A).
5.2 Regarding deduction of interest of Rs.85,15,695/- in computing the income of assessee. According to assessee, & 5193/Mum/13 A.Ys. 07-08 [DCIT vs. M/s. Shubham Properties Ltd.] Page 6 since immovable property was acquired out of borrowed funds, interest ought to be allowed as a deduction u/s.24(b) of the Act. Same was dismissed by CIT(A).
5.2 Assessing Officer did not compute the loss under the head ‘Income from House Property’ and did not allow the said loss to be carried forward u/s.71B of the Act. CIT(A) agreed with the assessee’s contention that Assessing Officer ought to have allowed carry forward of loss under the head ‘Income from House Property’. Since assessee has no other income under any other head, consequently, the loss under the head ‘Income from House Property’ qualifies u/s.71B of the Act to be carried forward to the following assessment year to be set off against the income under the same head. Accordingly, Assessing Officer was directed to allow the carry forward of loss to be capitalized and allowed as per the provisions of Section 71B of the Act.
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. & 5193/Mum/13 A.Ys. 07-08 [DCIT vs. M/s. Shubham Properties Ltd.] Page 7 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.
In the result, the appeal of Revenue is dismissed and that of assessee is allowed.
Pronounced in the open Court on this the 24th day of June, 2016.
Sd/- Sd/- (RAJESH KUMAR) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai: Dated 24/06/2016 True Copy S.K.SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार, आयकर अपील�य अ�धकरण, मुंबई ।