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Income Tax Appellate Tribunal, “F”, BENCH MUMBAI
Before: SHRI RAJENDRA, AM & SHRI SANDEEP GOSAIN, JM
Revenue are directed against the order of the learned CIT (A)-33, Mumbai dated 13-01-2012 passed in appeal No.CIT (A)-33/IT/223/10-11 for assessment year 2008-09 on the following respective grounds:-
Assessee’s appeal in (AY- 2008-09)
“1. On he facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in affirming the decision of Assessing Officer for assessing interest income of Rs.21,27,373/- separately under the head “Income from other sources” instead of netting with interest payable amounting to Rs.2,43,90,694/- as done by your appellant.
On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in stating that any gain on future sale of property would be offered under Business Income instead of Capital Gains.
3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in stating that the future rental income which will be received from the leased out premises should be assessed under the head “Income from other sources” instead of “Income from House Property”. 4. On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in giving an observation for treatment of income for future years though they were not subject matter of current year of appeal.
5. The Appellant prays craves leave to add to, alter, to delete from or substantiate the above ground of appeal.
Revenue’s appeal in (AY-2003-04)
“On the facts and in the circumstances of the case and in law, he Ld. CIT (A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:- 1. On the facts and circumstance of the case and in law the Ld. CIT(A) erred in deleting the addition of Rs.1,42,29,886/- made by the assessing officer applying percentage completion method (Revised AS-7) by taking net profit percentage after depreciation @8% of the work in progress.
2. On the facts and circumstance of the case and in law, the Ld. CIT (A) erred in accepting the contention of the assessee that since he is a real estate developer the revised AS-7 prescribing percentage completion method is not applicable and the AS-9 which provides for project completion method is applicable.
3. On the facts and circumstance of the case and in law, the Ld. CIT (A) erred in accepting the contention of the assessee disregarding the facts that the revenue is in appeal before the Hon’ble ITAT on the same ground for A. Y. 2007-08 and the final outcome on this issue is awaited.
4. The appellant prays that the order of the CIT (A) on the above grounds be reversed and that of the Assessing Officer be restored.
5. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.” 2. The brief facts of the case are that the assessee firm engaged in the business of Real Estate Developers & Builders filed its return of income declaring NIL income on 26-09-2008. The case was for scrutiny and after issuing/serving notices and receiving the reply the AO made addition on account of interest on FDRs, profit from construction business and income from other sources and determined the total income of the assessee at Rs.1,63,57,259/- vide assessment order passed u/s 143 (3) of the IT Act dated 20-12-2010. Aggrieved by the order of the AO the assessee preferred appeal before the learned CIT (A) and the learned CIT (A) partly allowed the appeal of the assessee. Aggrieved by the order of the learned CIT (A), both the assessee as well as the Revenue are now in appeal before us on the grounds mentioned hereinabove.
Firstly, we take up the assessee’s appeal in [AY 2008-09].
Ground No. 1 of the assessee’s appeal relates to assessing the interest income under the head “income from other source” instead of netting against interest payment. The learned AR at the time of hearing before us submitted that the interest income earned on FDRs was capitalized. It was further argued by the learned AR that though the learned CIT (A) accepted that the “appellant/assessee either can capitalize these items in the investment or ….” but upheld the decision of the AO on the wrong assumption that the assessee had claimed net interest expenses in the profit & loss account. The learned AR further relied upon the decision in the case of Bokaro Steel Ltd., 236 ITR 315(SC) wherein it was held that “the receipts which are intrinsically connected with the construction activity would be reduced from the cost of construction”. During the course of argument it was also submitted by the learned AR that the said issue is covered against the assessee as already decided by the ITAT Mumbai Bench in the assessee’s own case for assessment year 2007-08 in & 2422/M/201 Order dated 31-07-2012. The learned DR fairly conceded to the submission of the learned AR in this regard. The relevant portion of the said order is reproduced herein below for ready reference:-
“3. So far as it relates to assessee’s appeal we find that Ld. CIT (A) has rightly decided that since the assessee has capitalized all the cost of the project, the interest earned by it from FDR cannot be set off against interest paid. We find no infirmity in the order of Ld. CIT (A) while such addition has been upheld. Therefore, the appeal of the assessee is also dismissed.”
We respectfully following the aforesaid decision of the Co-ordinate Bench, in order to maintain judicial consistency, uphold the order of the learned CIT (A) and dismiss the ground of appeal of the assessee on this issue.
6. Grounds No.2, 3 and 4 are interrelated and interconnected.
Therefore, we deem it proper to adjudicate these grounds together. These grounds of appeal of the assessee relate to the issue of rental income which was assessed as “income from other sources” and as not “income from house property” and also any sale in future to be assesses as “business income”. At the time of hearing before us, the learned AR submitted that the learned CIT (A) has erred in stating that any gain on future sale of property would be treated as capital gain and that the learned CIT (A) has also erred in stating that the future rental income which would be received from the leased out premises should be assessed under the head “income from house property”. The learned AR further argued that the learned CIT (A) while passing the impugned order has relied upon the case of The Maharastra State Co-operative Bank Vs CIT reported in 2. ITR 543 (SB). However, as per contentions of the learned AR the facts of the aforementioned case are not applicable to the facts of the present case, as the issue before the Special Bench of the Tribunal was allowability of deduction of interest on income tax refund. It was further argued by the learned AR that the learned CIT (A) has allowed in the subsequent assessment years the income from house property as capital asset from assessment year 2009-10 onwards. It was further submitted that the property has been let out to M/s. Vodafone Essar Ltd. for assessment year 2009-10. The learned DR on the other hand, relied upon the orders of the Revenue authorities.
We have heard the rival submissions and perused the materials on record as well as the orders of the authorities below. We find that it is an undisputed fact that in the subsequent assessment year the learned CIT (A) has accepted the rental income as “income from house property” and the property as capital asset for assessment year 2009-10. As per the lease deed dated 16-12-2008 copy of which is on record entered into by and between M/s. Sky Star and M/s. Vodafone Essar Ltd. which came into force with effect from 1st December, 2008 for five years shows that the assessee is in the business of development of immovable properties by constructing buildings or complexes for commercial and residential purposes. It was also the object of the partnership firm to sell, let out or otherwise disposing off the premises therein or other business or transfer of the said property with building/buildings thereof. In view of this fact, we are of the considered view that since building which is capital asset of the assessee, and if the same is given on long term lease, it would yield rental income from house property in view of the decision rendered in the case of M/s. East India Housing and Land Development Trust Ltd. Vs CIT [42 ITR 49 (SC) wherein it has been concluded that the income received from tenants, from shops and stalls by the assessee is income from property as it falls under specific head described u/s 9 of the Act and that there is no alteration in character of income because of assessee’s object and, therefore, same is liable to tax as income from property and not as income from business. Therefore, while concurring with the same view the learned CIT (A) himself has accepted the rental income as “income from house property” and the property as capital asset. In view of the above, we set aside the order of the learned CIT (A) by reversing his findings on this issue and allow these grounds of appeal of the assessee.
8. Ground No.5 of the asessee’s appeal is general in nature and hence requires no specific adjudication.
In the result, the appeal of the assessee is partly allowed.
Now, we will adjudicate Revenue’s appeal ITA No.2237/Mum/2012.
Grounds No.1, 2 and 3 of the appeal are interrelated and interconnected and hence, they are adjudicated together. At the very outset it was submitted by the learned AR that this issue is covered in favour of the assessee in assessee’s own case for assessment year 2007-08. It was further submitted that in the subsequent assessment year i.e. assessment year 2009-10 and 2010-11 also the learned CIT (A) has allowed these grounds in favour of the assessee. The said factual and legal position has not been disputed by the learned DR representing the Revenue.
In order to decide the controversy, we first of all refer to the operative paragraph of the decision of the Tribunal in assessee’s on case for AY 2007-08 in along with revenue’s appeal in ITA No.2422/Mum/2011 Order dated 31-07-2012 which reads as under:-
“2.10 The fact that project is completed only up to 16% has also not been controverted by the revenue. According to aforementioned decision of Tribunal in the case of Awadhesh Builder (supra), the assessee has option to adopt work completion method. If the same is taken into consideration, as project has not been completed during the year and only 16% of the project is completed, the income could not be assessed even with reference to AS-7. Moreover, the other undisputed fact is also not controverted that assessee did not sell any portion of the impugned project and has started earning lease rental from the said project on long term basis. Therefore, keeping in view all these facts, we are of the opinion that Ld. CIT (A) has rightly deleted the addition. We decline to interfere and all grounds raised by the revenue in its appeal are dismissed.
In view of the above, we find that the order of the learned CIT (A) on this issue is well reasoned and judicious and there is no infirmity in the same. Accordingly, respectfully following the decision of our Co-ordinate Bench as aforesaid, we uphold the order of the learned CIT (A) and dismiss the grounds of the Revenue’s appeal on this issue.
Ground Nos. 4 and 5 of the Revenue’s appeal are of general nature and therefore, requires no specific adjudication in this regard.
In the overall result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed. Order pronounced in the open court on 11/5/2016.