Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI RAJENDRA & SHRI SANJAY GARG
आदेश / O R D E R
Per Sanjay Garg, Judicial Member:
The present cases are bunch of assessee’s appeals for different assessment years, cross appeals by the Revenue and cross objections thereto by the assessee. Since the facts and issues involved in all the above cases are identical and are relating to the same assessee, hence all the above cases are taken together for disposal by this common order.
First we take up appeal of the Revenue for A.Y. 2004-05 bearing ITA No.5520/M/2010.
ITA No.5520/M/2010 for A.Y. 2004-05 3. The Revenue in this appeal has taken the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the rent of Rs. 1,69,29,770/- received from Shoppers' Stop Ltd. and Marine Times was assessee's income from business and not 'Income from House Property' as assessed by the Assessing Officer without appreciating that the assessee was neither engaged in any business activity nor handed over any running business to its tenant but simply received rent from its tenants for the portion of building let out of which assessee was the owner.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to allow the entire claim of depreciation on building by holding that the rental income was 'Income from Business' and not 'Income from House Properties' as assessed in the assessment order.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to allow property tax of Rs.35,91,302/- and interest on borrowed capital of Rs.2,22,11,463/- under the head 'Business Income' without appreciating that assessee was not engaged in any business activity but had simply let out the House Property.
ITA No.5215 & 5521/M/2010 & Others 3 M/s. Khandelwal Estates Pvt. Ltd. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in treating the collection of maintenance of Rs.24,94,553/-, miscellaneous income of Rs.3,17,902/- as 'Business Income' without appreciating that the assessee was not engaged in any business activity. 5. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds at any time before or at the time of hearing of appeal. 6. The appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”
Grounds Nos.1 to 3 4. First ground taken by the Revenue in this appeal as to whether the rental income and service charges derived by the assessee from shopping mall/business centre is to be assessed as ‘Income from House Property’ or ‘Business Income’. Ground No.2 taken by the Revenue in this appeal is relating to the claim of depreciation on the building of the business centre/commercial complex and ground No.3 is regarding the allowability of property tax and interest under the ‘Business Head’. At the outset, the Ld. A.R. of the assessee has brought our attention to the decision of the Tribunal in the own case of the assessee for A.Y. 2003-04 vide ITA No.2692/M/2010 dated 07.02.14 wherein the above issue relating to the income of the assessee from the commercial complex has been dealt by the Tribunal and the Tribunal has held that the income generated by the assessee from commercial exploitation of the property is to be treated as business income of the assessee. The Tribunal, while holding so, after deliberating on the facts and circumstances of the case, has observed that the activitivities of the assessee of renting the premises and offering various services was the composite commercial activity and income derived by the assessee from shopping mall/business centre was assessable as business income and not as income from house property.
The Ld. D.R. has also fairly agreed that the issue is squarely covered by the decision of the Tribunal in the own case of the assessee in earlier assessment year. The Ld. D.R. has not brought any new fact or circumstances
ITA No.5215 & 5521/M/2010 & Others 4 M/s. Khandelwal Estates Pvt. Ltd. which may justify departure from the decision arrived by the Tribunal on the same issue in earlier assessment year. Even the Assessing Officer (hereinafter referred to as the AO) also in A.Y. 2012-13 has accepted the income from the business centre/ commercial complex as business income of the assessee. The assessee is accordingly eligible to claim depreciation on the asset and other business expenditure. Therefore we do not find any infirmity in the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] in relation to the ground Nos.1 to 3 and the same are accordingly dismissed being covered by the decision of the Tribunal in A.Y. 2003-04.
Ground No.4 6. Vide ground No.4, the Revenue has agitated the action of the Ld. CIT(A) in treating the collection of maintenance charges and miscellaneous income under business head. As observed above, since we have already held that the activity of the assessee is a commercial activity of letting of the property and providing services, hence this income has also nexus with the assessee’s business activity and the same accordingly is to be assessed as business income of the assessee. We do not find any infirmity in the order of the Ld. CIT(A) in this respect also.
Grounds No. 5 & 6 are general in nature and do not require any adjudication.
Now we come to the cross objection of the assessee bearing CO No.118/M/2011 for A.Y. 2004-05 against ITA No.5520/M/2010.
CO No.118/M/2011 for A.Y. 2004-05 9. The assessee has taken the following grounds in his cross objections: “1. On the facts and circumstances of the case, the ld. CIT (A) grossly erred in confirming the observation of the AO that cost of the property sold should be Rs. 1.73 crore only as against Rs. 2.32 claimed by your appellant, thereby reducing the loss to the extent of Rs. 59.12 lakh.
ITA No.5215 & 5521/M/2010 & Others 5 M/s. Khandelwal Estates Pvt. Ltd.
On the facts and circumstances of the case, the ld. CIT (A) grossly erred in upholding the AO's working in which average cost per square feet of constructed area and common amenities had been calculated on the basis of entire constructed area of 12,130 square feet, completely ignoring the fact that only 8,298/- sq. feet area had been constructed till 31-03-2004, thereby erroneously reducing the cost of property sold.
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeal) grossly erred in making enhancement of income by disallowance of Rs. 1,83,675/- u/s 14A r.w.rule 8D, completely ignoring the fact that Rule 8D is not retrospective and will apply from A.Y. 2008- 09 onwards.
The appellant craves leave to add to, alter, to delete from or substantiate the above ground of appeal.”
Grounds No.1 &2 :
This issue has been discussed by the AO in para 5 of the assessment order which for the sake of convenience is reproduced as under: “5 Business Income: As per the balance sheet the assessee had ready stock of premises at cost of Rs.5,33,94,684/ as on 31/03/2003. As on 31/03/2004 the assessee had shown stock of ready premises at Rs 3,00,95,847/-. The difference of Rs.2,32,98,8 37/- was transferred to cost of premises sold. 5.1 The property under consideration is situated in phase-II of the project of the assessee. The total area in phase-II of the project as per the details furnished by the assessee is at per 12,100 sq. ft. Out of that the assessee has completed only 8,298 sq. ft. as on 31/03/2004. The total cost of common amenities incurred by the assessee till 31/03/2004 in respect of the property phase II was Rs.1,31,98,017/-. The entire cost of the common amenities is to be allotted to the total area of the project. The average cost per sq.ft in phase-II in respect of common amenities comes to Rs. 1,088/-. Thus the cost attributable to the area constructed of 8,298 sq.ft X Rs.1,088/- = Rs.90,28,224/- only. As against this assessee has charged the entire cost to the work in progress and to cost of sale. Thus the assessee has over stated the cost of sale. The cost of sale is therefore, worked out as under:
Direct cost as per details given Rs. 15,13,14,320 Average cost per sq.ft. on area of 12,130 sq. ft. Rs. 12,474 Average cost of common amenities per sq.ft. 1088 Rs. 1,088 Cost of Sale of 1282 Sq. ft (104 +1178) x Rs.13,562 = Rs. 1,73,86,484 Total cost of sale per sq. ft. Rs. 13,562
ITA No.5215 & 5521/M/2010 & Others 6 M/s. Khandelwal Estates Pvt. Ltd. 5.2 In view of the reasons stated above the book results declared by the assessee in respect of the cost of sales can not be accepted. Hence, the profit & loss of the assessee is modified to the extent stated above. Rs. Sale as per P&L A/c 97,37,000 Less: Cost as worked out above 1,73,86,484 Loss as admissible 76,49,484 The assessee has show a sale consideration of Rs. 97,37,000/- and the cost of sale at Rs.2,32,98,837/- Thus, there is a loss of Rs.1,35,61,837/- from this transaction. The excess cost booked in the account resulted in this loss. The excess loss amounting to Rs. 59,12,353/- (Rs. 1,35,61,837 - Rs 576,49,484/-) is to be disallowed and reduced from the loss shown in P & L account for the purpose of computation of income.”
Before the Ld. CIT(A), Ld. A.R. of the assessee made the following submissions: “The total area in phase 2 of the project was 12,130 sq. feet. Out of that the appellant had completed only 8,298 sq. feet as on 31.03.2004. While calculating the cost of the premises sold one should not consider the proportionate cost of amenities. The assessing officer had only considered the cost amenities while calculating the cost of the premises sold. The assessing officer also erred in considering the total square feet of phase 2 at 12130 sq. feet, instead of actual construction of only 8,298 sq. feet. The appellant had requested that the disallowance of loss worked out by the AO should be deleted.”
The Ld. CIT(A), however, did not agree with the contention of the assessee and upheld the working of the AO in this respect.
After considering the submissions of the Ld. Representatives of the parties, we find that the AO, though noted that out of the total area of 12100 sq. feet, the assessee had completed only 8,298 sq. feet as on 31.03.04. He, however, allocated the entire cost of amenities to the total area of the project and thereafter calculated the average cost per sq. feet and thereafter attributed the said average cost per sq. feet to 8,298 sq. feet of area. We do not find justification in the above method adopted by the AO. Since the constructed area up to 31.03.04 was only 8,298 sq. feet, hence the cost of amenities for the year under consideration was to be allocated to the actual area constructed and not to the total area of 12100 sq. feet. There is no justification on the part of
ITA No.5215 & 5521/M/2010 & Others 7 M/s. Khandelwal Estates Pvt. Ltd. the AO to allocate the cost of amenities even to the area which was not constructed/in existence during the year. We, therefore, direct the AO to allocate the cost of amenities of Rs.1,31,98,017/- directly to the constructed area of 8,298 sq. feet and not to the total area of 12100 sq. feet.
Ground No. 3 :
Vide ground No.3, the assessee has agitated the enhancement of disallowance made by the Ld. CIT(A) under section 14A read with rule 8D. The Ld. CIT(A) noticed that the assessee during the year had received dividend income of Rs.1,45,800/-. He, therefore, computed the disallowance as per rule 8D of the Income Tax Rules read with section 14A of the Income Tax Act. Being aggrieved, the assessee has come in appeal before us.
We have heard the Ld. Representatives of both the parties and have also gone through the records on this issue. It may be observed that in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) the Hon'ble Bombay High Court has held that Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable but can be applied only if the assessee's method is not satisfactory. It has been further held that Rule 8D is not retrospective and applies from A.Y. 2008-09. For the years for which Rule 8D is not applicable and in the event of that the AO is not satisfied with the explanation/working given by the assessee, disallowance under section 14A has to be made on a reasonable basis. Almost similar view has been expressed by Hon'ble Delhi High Court in the case of 'Maxopp Investment Ltd. & Others' vs. CIT (247 ITR 162).
It may be further observed that it is not a case where no exempt income was received by the assessee despite making investments for earning exempt income. It is also not the case of the Revenue that the exempt income earned by the assessee was very less or not in proportion to the investments made by the assessee for this purpose. Under such circumstances the different co- ordinate benches of this Tribunal have observed that in such cases certain
ITA No.5215 & 5521/M/2010 & Others 8 M/s. Khandelwal Estates Pvt. Ltd. percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. The Hon'ble Bombay High Court in the case of CIT vs. 'Godrej Agrovet Ltd.' (ITA No.934/2011) decided on 08.01.13 has upheld the order of the Tribunal directing the AO to restrict the disallowance to the extent of 2% of the total exempt income earned by the assessee. Hence, considering the overall facts and circumstances of the case we restrict the disallowance u/s 14A in the case of the assessee @ 5% of the tax exempt income earned by the assessee during the year.
Ground No. 4 is general in nature and does not require any adjudication.
Now we come to the Revenue’s appeal for A.Y. 2005-06 bearing ITA No.5521/M/2010.
ITA No.5521/M/2010 (A.Y. 2005-06) 19. The Revenue, in this appeal, has taken the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the assessee ceased to be the owner of the property given to Movie Times from February, 2003 without appreciating that the property was transferred only on 31.03.2005.
On the facts and in the circumstances of the case and in law, without prejudice to the above, in view of the decision that the assessee ceased to be the owner from February, 2003, the capital gain from transfer of said property ought to have been offered to tax in A.Y.2003-04.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the rent of Rs.6,90,19,415/- received from Shoppers' Stop Ltd. and Marine Times was assessee's income from business and not 'Income from House Property' as assessed by the Assessing Officer without appreciating that the assessee was neither engaged in any business activity nor handed over any running business to its tenant but simply received rent from its tenants for the portion of building let out of which assessee was the owner.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow the entire property tax under the head Business Income' without appreciating that there was no business activity in the year under consideration and the income for the year under consideration was assessed under the head 'Income from House Property'.
ITA No.5215 & 5521/M/2010 & Others 9 M/s. Khandelwal Estates Pvt. Ltd.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to treat collection for maintenance of Rs.27,74,676/-, miscellaneous income of Rs.62,234/-, parking charges of Rs.20,69,780/-, tea sale vendor Rs.20,974/- and promotional income of Rs.5,21,435/- as 'Income from Business' as against Income from Other Sources without appreciating that assessee was not engaged in any business activity but had simply let out the House Property.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made of Rs.1,82,52,106/- as Long Term Capital Gain holding Movie Times as a business asset hence depreciable asset without appreciating that Movie Times was not business asset as income from the same was assessed under the head ‘Income from House Property’.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the Assessing Officer to allow carry forward of business loss of earlier year without appreciating that the rental income for earlier years was assessed under the head 'Income from House Property'. 8. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds at any time before or at the time of hearing of appeal.
The appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”
Ground No.1 & 2: 20. Ground Nos.1 & 2 are relating the computation of notional rent from M/s. Movie Times of Rs.20 lakhs. The AO observed that the assessee had not shown any rental income from the premises given on rent to M/s. Movie Times. The rent was being shown till A.Y. 2003-04. The premises had been sold at the fag end of the previous year relevant to A.Y. 2005-06. He further noticed that the assessee had offered the income from sale of the said premises in A.Y. 2005-06. He, therefore, held that the assessee was the owner of the part of the complex which was rented to M/s. Movie Times and assessed the rental income at the rate of 10% of the deposit of Rs.2 crores at Rs.20 lakhs and added the same to the annual value of the property.
In appeal before the Ld. CIT(A), the assessee explained that the said property was sold to M/s. Movie Times in A.Y. 2003-04 itself for the sale consideration of Rs.2 crores vide memorandum of understanding dated
ITA No.5215 & 5521/M/2010 & Others 10 M/s. Khandelwal Estates Pvt. Ltd. 01.02.03. The assessee had received the major part of the consideration i.e. Rs.1.82 crores in A.Y. 2003-04 itself and had also allowed the possession of the said immovable property to the purchaser in part performance of the contract in A.Y. 2003-04 itself. The copies of MOU and agreement of sale were also filed before the Ld. CIT(A). It was also explained that since the assessee was holding its property in stock in trade account, hence, it was under bonafide belief that the transaction of sale and income there from was taxable only in the year in which the conveyance was registered i.e. A.Y. 2005-06. The assessee therefore did not offer the income from sale of the said property in A.Y. 2003-04. However, a revised return was filed for A.Y. 2003-04 on 08.04.08 in respect of the said income in response to the notice issued under section 148 by the AO, the aforesaid sale transaction of immovable property was offered to tax in the said revised return of income. Thereafter, no action was taken by the Department and as such the revised return filed by the assessee has been accepted by the Department.
The Ld. CIT(A), after considering the submissions and the documents relied upon by the assessee, held that the assessee ceased to be the owner of the said property from February, 2003 therefore there was no question of assessing deemed rental income in the hands of the assessee in this respect.
The Ld. D.R. could not point out any defect in the well reasoned finding of the Ld. CIT(A) arrived at after going through the evidences produced by the assessee in this respect. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) in this respect and the same is accordingly upheld.
Ground Nos.3, 4 & 5 24. Ground Nos.3, 4 & 5 are identical to the ground No.1 to 3 of the Revenue’s appeal for A.Y. 2004-05. In view of our findings given above, we do not find any merit in the above grounds and the same are accordingly dismissed.
ITA No.5215 & 5521/M/2010 & Others 11 M/s. Khandelwal Estates Pvt. Ltd.
Ground No.6 25. Ground No.6 is in relation to the computation of income of long term capital gains from the sale of M/s. Movie Times. The AO observed that the assessee during the year had sold 2980 sq. feet of the property to M/s. Movie Times for a consideration of Rs.2 crores. The assessee had reduced the sale proceeds of Rs.2 crores from the corresponding block of depreciable assets. The AO, however, observed that the sold property was not a business asset of the assessee and that the income from the sale of property was assessable as long term capital gains. He, thereafter, applied section 50C of the Act and estimated the fair market value of the property as Rs.3,89,84,500/- and after adopting the cost of acquisition at Rs.1.84 crores and sale consideration at Rs.3,89,54,500/- , computed the long term capital gains at Rs.1,82,52,106/- and added back the same to the income of the assessee.
In appeal before the Ld. CIT(A), the assessee submitted that the aforesaid property was sold to M/s. Movie Times for a sale consideration of Rs.2 crores vide MOU dated 01.02.03. The assessee had received the major part of the consideration at Rs.18,29,500/- during the A.Y. 2003-04 itself and the possession of the property was also handed over to M/s. Movie Times in A.Y. 2003-04 itself in part performance of the sale agreement. However, the sale deed in respect of M/s. Movie Times was executed and registration on 31.03.05. The Stamp Duty Authorities had considered the market value of the said property at Rs.3,89,84,500/-. It was therefore pleaded that the transfer was completed in the A.Y. 2003-04 in view of the definition of transfer given under section 2(47) of the Income Tax Act. It was also explained that in the revised return for A.Y. 2003-04 filed on 08.04.08 in response to notice under section 148 of the Act, the proceeds of the said sale transactions were offered to tax. It was also submitted that though the assessee had committed an error for offering the income in respect of aforesaid immovable property in A.Y. 2005-06, however, the AO was duty bound to assess the income in the
ITA No.5215 & 5521/M/2010 & Others 12 M/s. Khandelwal Estates Pvt. Ltd. previous assessment year in which such income had arisen. The Ld. CIT(A), after considering the submissions in this respect, held that the transfer of the property was done in A.Y. 2003-04 itself. He also observed that the revised return filed by the assessee in response to notice under section 148 was lying in the records. He however, further observed that the proceedings initiated under section 147 of the Act for A.Y. 2003-04 were dropped by the AO on account of non availability of reasons recorded for issuance of notice under section 148 of the Act and that the AO had mentioned that the notice under section 148 was wrongly issued for A.Y. 2003-04. Therefore, the reassessment proceedings were not processed/continued in respect of revised return filed by the assessee for A.Y. 2003-04 in response to notice under section 148 of the Act. He therefore observed that the verification and correctness of the assessee’s claims i.e. cost of property, sale consideration and working of profit/loss on such sale remained unexamined by the Department in the AY 2003-04. In view of the above, he deemed it fit to consider the sale transaction as assessable in the year under consideration. After holding so, he held that the sold property was a business asset and therefore was a depreciable asset. Consequently, the provisions of section 50 of the Act were applicable as the same being the provision for computation of capital gain in case of depreciable assets. He, therefore, held that any capital gains arrived from the sale of depreciable assets were to be assessed as short term capital gains. He further held that where the sold asset was forming part of block assets and as per the provisions of section 43(6)(c), the written down value (WDV) of the block of asset was required to be reduced by the amount of consideration received on account of sale of the particular asset falling in the block of asset and as per the provisions, however, where the sale consideration received on sale of a particular asset exceeds the WDV of the entire blocks of assets, the computation of the capital gains was to be arrived at by applying provisions of section 50 of the Act. However, since in the case in hand, the sale consideration received on the sale of part of the complex did not exceed WDV, therefore, provisions of section 50 were not
ITA No.5215 & 5521/M/2010 & Others 13 M/s. Khandelwal Estates Pvt. Ltd. applicable. He, thereafter held that as per the provisions of clause (c) of section 43(6) the sale consideration of ‘M/s. Movie Times’ was required to be reduced from the WDV of block of asset namely ‘building’. He thereafter held that section 50C was applicable to the above stated transaction and as per the Stamp Duty Authorities, the value of the sold property was taken at Rs.3,89,84,500/-. He accordingly directed the AO to consider the sale consideration at Rs.3,89,84,500/- and directed the AO to reduce the said amount from WDV of block of assets (building) and directed that the consequent impact on depreciation would be calculated accordingly for the year under consideration and subsequent years also. The Revenue, thus, has come in appeal before us agitating the action of the Ld. CIT(A) in deleting the addition of long term capital gains computed by the AO in this respect.
We have considered the rival contentions of the parties. We find that the Ld. CIT(A) has already decided in relation to the issue of deemed rent from the M/s. Movie Times that the assessee had ceased to be the owner of the property in the A.Y. 2003-04 itself. It is also a fact on the file that the assessee in response to the notice under section 148 of the Act had filed a revised return offering the income from the said transaction. Merely because the AO had not verified the claim of the assessee or that the proceedings initiated under section 147 of the Act were dropped, that cannot be a ground to assess the income of the assessee from the said transaction in the year under consideration i.e. A Y 2005-06. Once the Ld. CIT(A) has held that the transfer had taken place in A.Y. 2003-04, there was no justification on his part to assess the income from the said transaction/transfer in A.Y. 2005-06. It was open to the Revenue Authorities to take note of the revised return filed by the assessee for A.Y. 2003-04 in response to notice under section 148 of the Act and take appropriate action to verify the correctness of the claim by way of invoking relevant provisions of the Act. However, the said income cannot be assessed in the year under consideration. However, we agree with the contention of the
ITA No.5215 & 5521/M/2010 & Others 14 M/s. Khandelwal Estates Pvt. Ltd. Ld. D.R. that since it has been contended by the assessee itself that the transfer has taken place in A.Y. 2003-04 and which contention of the assessee has been accepted by the Ld. CIT(A) also hence, in the circumstances, we direct that the proceeds of the sale transaction are to be reduced from the WDV of the block of the assets in A.Y. 2003-04 itself and the assessee will not be entitled to claim of depreciation on the sold part of the asset from the date of sale of the property in A.Y. 2003-04.
So far as the application of provisions of section 50C is concerned, the Ld. A.R. of the assessee has relied upon the decision of the co-ordinate bench of the Tribunal in the case of “Bhaidas Cursondas & Co. vs. ACIT” in ITA No.5019/M/2012 & another decided vide order dated 11.03.15, wherein, the co-ordinate bench of the Tribunal has held that the deeming fiction of section 50C is applicable for limited purpose of computing the capital gain under section 45 read with section 48 on the assets specified under the said sections and that the WDV has to be necessarily computed in terms of section 43(6) and for which section 50C has no application. In view of the above, respectfully, following the above proposition of law laid down by the co-ordinate bench of the Tribunal, it is held that deeming fiction of section 50C is not applicable to the transaction in question in the case of the assessee. This ground of the appeal is decided accordingly in terms indicated above.
Now coming to the appeal of the assessee for A.Y. 2005-06 bearing ITA No.5215/M/2010.
ITA No.5215/M/2010 for A.Y. 2005-06 30. The Ld. A.R. of the assessee has moved an application that since the assessee has also filed cross objections to the appeal of the Revenue and the issues raised in the appeal of the assessee as well as cross objections are identical, hence the assessee would opt to press its cross objections and that the
ITA No.5215 & 5521/M/2010 & Others 15 M/s. Khandelwal Estates Pvt. Ltd. appeal of the assessee be dismissed as withdrawn. In view of the above, the appeal of the assessee is hereby dismissed as withdrawn.
Now coming to the cross objections filed by the assessee for AY. 2005- 06 bearing CO No.117/M/2010 against ITA No.5521/M/5215/M/2010.
CO No.117/M/2010 32. The assessee has taken the following grounds of appeal: “1. On the facts and circumstances of the case, the learned CIT (A) grossly erred in confirming Assessing officer's order with respect to disallowance of Interest on borrowed capital amounting to Rs. 3,40,31,832/-.
On the facts and circumstances of the case, the Ld. CIT (A) erred in taking the stamp duty value amounting to Rs.3,89,84,500/- as sale consideration for the sale of property to "M/s. Movie Time" as against actual sale consideration of Rs. 2,00,00,000/- received by your appellant and accordingly direct the AO to recalculate depreciation after deducting aforesaid sale consideration from the block of assets.
The appellant craves leave to add to, alter, to delete from or substantiate the above ground of appeal.”
Ground No.1
The Ld. CIT(A) has discussed this issue in para 5.2. of the impugned order. The AO during the assessment proceedings noted that the assessee had debited an amount of Rs.3,40,31,832/- as interest on loans. He noted that the said amount had been disallowed in the computation of income but deduction had been claimed by way of notes. He held that no such deduction can be allowed in view of the decision of the Hon’ble Supreme Court in the case of “Goetze India Ltd. vs. CIT” 284 ITR 323. He further observed that without prejudice to the above, the claim of the assessee was not allowable even otherwise. He observed that the assessee during the year had given substantial funds to sister concern and there were multiple movements and cross movements of funds between the group concerns of the assessee. He therefore disallowed the deduction for interest payment on borrowed funds for the year under consideration.
ITA No.5215 & 5521/M/2010 & Others 16 M/s. Khandelwal Estates Pvt. Ltd.
In appeal before the Ld. CIT(A), it was explained by the assessee that the assessee had paid interest to HDFC. The said loans were utilized for the acquisition and the construction of the property. Apart from the payment of interest to HDFC, the assessee had not paid any interest on funds borrowed from other parties. The assessee had not paid any interest of unsecured loans amounting to Rs.2.60 crores. It was further explained that the assessee company had given loans amounting to Rs.6.20 crores out of which ICDs amounting to Rs.10 lakhs were interest free only. Thus, interest free loans taken far exceeded than interest free loans given by the company. It was further explained that the assessee had interest free current liabilities amounting to Rs.48.22 crores, interest free share application money of Rs.4.08 crores and interest free security deposits of Rs.4.63 crores and the assessee during the year received other interest free amount of Rs.36.64 crores. It was therefore explained that the own interest free reserves of the assessee were much more than the interest free advances given and that the loan taken by the assessee upon which the interest was paid to HDFC was used for business purpose of the assessee. It was also explained that the assessee did not divert any interest bearing loans taken from HDFC to sister concerns. After considering the submissions and evidences furnished by the assessee, the Ld. CIT(A) held that the payment of interest to HDFC at Rs.3,18,19,763/- was revenue expenditure since the borrowed funds were utilized for business purpose of the assessee. He, however, rejected the claim of the assessee observing that the same was not claimed by the assessee in the return of income. Therefore, relying upon the decision of the Hon’ble Supreme Court in the case of “Goetze India Ltd. vs. CIT” (supra), he disallowed the claim of the assessee. Being aggrieved, the assessee has come in appeal before us.
We have considered the rival submissions. From the above discussion, it is clear that the Ld. CIT(A) after considering the submissions of the assessee and verification of the facts, has held that the interest expenditure was
ITA No.5215 & 5521/M/2010 & Others 17 M/s. Khandelwal Estates Pvt. Ltd. allowable expenditure in this case. He has rejected the claim of the assessee only on the ground that the same was not claimed in the return of income. However, it is also an admitted fact that the assessee had put a note in the return of income and had claimed the said deduction, however, had not deducted the same in computation income and had reserved right to claim the same during the assessment proceedings.
The Hon’ble Bombay High Court in the case of ‘Pruthvi Brokers & Shareholders Pvt. Ltd.’ (2012) 349 ITR 336 (Bom.), while relying upon the various decisions of the Hon’ble Supreme Court and other Hon’ble High Courts, has held that even if a claim is not made before the AO it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon’ble Bombay High Court while relying upon the decision of the Hon’ble Supreme Court in the case of ‘Jute Corporation of India Limited vs. CIT’ 1991 Supp (2) SCC 744 = (1991) 187 ITR 688 has observed that the power of the Appellate Commissioner is coterminous with that of the Income Tax Officer and an appellate authority while hearing appeal against the order of the subordinate authority, has all the powers which the original authority may have in deciding the questions before it, subject to the restrictions or limitations, if any, prescribed by statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. The appellate authorities have jurisdiction to deal not merely with additional grounds which became available on account of change of circumstances or law, but with additional grounds which were available when the return was
ITA No.5215 & 5521/M/2010 & Others 18 M/s. Khandelwal Estates Pvt. Ltd. filed but could not have been raised at that stage or the grounds which became available on account of change of circumstances or law. The words ‘could not have been’ raised must be construed liberally and not strictly. It is open to the assessee to claim a deduction before the appellate authority which could not been claimed before the AO. The Hon’ble Bombay High Court has further observed that the decision of Hon’ble Supreme Court in the case of ‘Goetze (India) Limited v. CIT’ (2006) 157 Taxman 1, regarding the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Moreover, it is the duty of the taxing authorities to collect the tax which is actually and rightly payable by the assessee as per the relevant provisions of the Act and not to punish the assessee for any inadvertent mistake on his part.
In view of the above stated legal position, we direct the AO to allow the claim of interest expenditure in issue as revenue expenditure.
Ground No.2
The second cross objection taken by the assessee is with regard to the applicability of section 50C to the sale proceeds of M/s. Movie Times. In view of our discussion made and finding given above while deciding ground No.6 of Revenue’s appeal, this issue is decided accordingly.
Now coming to the Revenue’s appeal for A.Y. 2006-07 bearing ITA No.5522/M/2010.
ITA No.5522/M/2010 for A.Y. 2006-07 40. The Revenue in this appeal has taken six effective grounds of appeal.
ITA No.5215 & 5521/M/2010 & Others 19 M/s. Khandelwal Estates Pvt. Ltd. Ground Nos.1 to 3 41. Ground Nos.1 to 3 are regarding the treatment of income derived from commercial complex as to whether the same has to be assessed as income from house property or business income and further about the claim of allowability of depreciation and expenditure relating to said commercial complex. In view of our findings given above and the issue being covered by the decision of the co-ordinate bench of the Tribunal in the own case of the assessee for A.Y. 2003-04, these grounds are accordingly decided in favour of the assessee and the finding of the Ld. CIT(A) in this respect is upheld.
Ground No.4 42. Ground No.4 is in relation to the disallowance of interest on loan amounting to Rs.4,76,01,958/- under section 36(1)(iii). The Ld. CIT(A) has discussed this issue in para 3(c) of the impugned order for A.Y. 2006-07. The AO observed that interest on borrowed capital did not pertain to commercial complex under consideration and that the said interest payment was pertaining to the loans taken for acquisition of the business and payment of outstanding liabilities by the new shareholders/directors.
Before the Ld. CIT(A), the assessee explained that the interest expenditure was incurred by the assessee on additional funds raised to pay off the then existing liabilities of the acquired business. It was explained that it was a business venture and that the entire transaction was carried out in systematic and organized manner with a view to earn profit. The Ld. CIT(A), after considering the submissions of the assessee, held that the interest expenditure was allowable to the assessee as revenue expenditure. We do not find any infirmity in the well reasoned order of the Ld. CIT(A) in this respect. His findings on this issue are therefore upheld. Ground No.5 44. Ground No.5 is relating to the treatment of income from car parking charges, compensation and other miscellaneous income as to whether the
ITA No.5215 & 5521/M/2010 & Others 20 M/s. Khandelwal Estates Pvt. Ltd. business income or income from other sources. In view of our discussion made above, all these activities were relating to the business activity of the assessee. The Ld. CIT(A) has rightly held that the income earned from the above activities was business income of the assessee. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) in this respect.
Ground No.6 45. Ground No.6 is relating to the carry forward of losses pertaining to depreciation of earlier years. Since we have upheld the finding of the Ld. CIT(A) that the complex in question was the business asset of the assessee and the depreciation was allowable and further that the assessee had not carried forward the business loss but only the depreciation. As per section 79 of the Act, the Ld. CIT(A) has allowed the carried forward pertaining to the depreciation in earlier years as per law. We do not find any infirmity in the order of the Ld. CIT(A) in this respect.
Now coming to the appeal of the Revenue for A.Y. 2007-08 bearing ITA No.6380/M/2010.
ITA No.6380/M/2010 for A.Y. 2007-08 47. The grounds raised by the Revenue in this appeal are identical to the grounds raised in the appeal for A.Y. 2006-07 and in view of our finding given above and applying the same ratio, appeal of the Revenue is hereby dismissed.
Now coming to the appeal of the Revenue for A.Y. 2008-09 bearing ITA No.5479/M/2011. ITA No.5479/M/2011 for A.Y. 2008-09 49. The Revenue has taken four effective grounds in this appeal Ground Nos.1 to 3 50. Ground Nos.1 to 3 are in relation to the treatment of income received from the business complex. As held above, the same is to be treated as business
ITA No.5215 & 5521/M/2010 & Others 21 M/s. Khandelwal Estates Pvt. Ltd. income and depreciation on the business asset is allowable and the corresponding expenditure is also held to be allowable.
Ground No.4 51. So far as Ground No.4 is concerned, the same is in relation to the carried forward of losses pertaining to the depreciation of earlier years. In view of our finding given above, while deciding the assessee’s appeal for A.Y. 2006-07 and 2007-08 and applying the same ratio, this ground of the appeal is also dismissed.
Now coming to the assessee’s appeal for A.Y. 2008-09 bearing ITA No.5492/M/2011.
ITA No.5492/M/2011 for A.Y. 2008-09 53. The Ld. A.R. of the assessee has stated that the appeal is time barred by 22 days. An application for condonation of delay has been moved which is accompanied by affidavit of the Managing Director of the assessee. Considering the circumstances explained therein, we condone the short delay of 22 days in this appeal.
The assessee, in this appeal, has agitated the action of the Ld. CIT(A) in confirming the disallowance of share issue expenses of Rs.3,18,200/-, land tax of Rs.35,286/- and interest on borrowed capital of Rs.42,86,679/-. The Ld. A.R. of the assessee has stated at Bar that he does not press issue relating to disallowance of share issue expenses and land tax due to smallness of amount. However, in respect of the interest on borrowed capital, the Ld. A.R. has stated that the assessee had own sufficient funds and that as per the law laid down by the Hon’ble Bombay High Court in the case of “CIT vs. Reliance Utilities and Power Ltd.” (2009) 313 ITR 340 (Bom) and in the case of “HDFC Bank Ltd.” in ITA No.330 of 2012 vide order dated 23rd July 2014, the loan advanced by the assessee was to be treated from own funds and not out of borrowed funds.
ITA No.5215 & 5521/M/2010 & Others 22 M/s. Khandelwal Estates Pvt. Ltd. He, therefore, has submitted that the disallowance of interest expenditure was not attracted.
We may observe that the Hon'ble Bombay High Court in the case of 'CIT vs. Reliance Utilities and Power Ltd.' (supra), has observed that if there are funds available, both interest free and overdraft/loans taken, then presumption would arise that investments would be out of the interest free fund generated or available with the assessee. However, a perusal of the orders of lower authorities reveal that the above stated explanation put by the assessee regarding investments made from own funds has not been examined by the lower authorities. In view of our above observations, the disallowance made by the lower authorities on this issue is hereby set aside and the matter is restored to the file of the AO with a direction to decide the issue afresh in the light of the observations made above and the relevant case laws on the issue. Needless to say, the AO will give proper opportunity to the assessee to present its case. With the above observations, this appeal of the assessee is hereby treated as allowed for statistical purposes.
Now coming to the Revenue’s appeal for A.Y. 2009-10 bearing ITA No.4708/M/2012.
ITA No.4708/M/2012 for A.Y. 2009-10 57. The grounds taken by the Revenue in this appeal are identical to the grounds taken in earlier assessment years i.e. in relation to the treatment of income from business complex and carried forward of depreciation etc. In view of our findings given above, all the issues are decided against the Revenue accordingly. The appeal of the Revenue is therefore dismissed.
Now coming to the assessee’s appeal for A.Y. 2009-10 bearing ITA No.4171/M/2012.
ITA No.5215 & 5521/M/2010 & Others 23 M/s. Khandelwal Estates Pvt. Ltd.
ITA No.4171/M/2012 for A.Y. 2009-10 59. The assessee has taken three effective grounds of appeal. Ground Nos.1 & 2: At the outset, the Ld. A.R. of the assessee has stated at bar that he does not press ground Nos.1 & 2 of the appeal due to smallness of the amount.
Ground No.3 60. Ground No.3 is regarding the disallowance of interest amount on the ground that the borrowed funds were used for giving interest free loans and making investment.In view of our findings given above while deciding the assessee’s appeal for A.Y. 2008-09, this issue is restored to the file of the AO in the same terms as indicated above to decide it afresh.
In the result, all the appeals of the Revenue are hereby dismissed and the appeal of the assessee i.e. ITA No.5215/M/2010 is dismissed as withdrawn and all the remaining appeals and cross objections of the assessee are hereby treated as allowed.
Order pronounced in the open court on 08.01.2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 08.01.2016 को क� गई ।
Sd/- Sd/- (राजे�� / Rajendra) (संजय गग� / Sanjay Garg) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER
मुंबई/Mumbai; �दनांक/Dated 08.01.2016
* Kishore
आदेश क� ��त�ल�प अ�े�षत आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded आदेश क� ��त�ल�प अ�े�षत आदेश क� ��त�ल�प अ�े�षत Copy of the Order forwarded Copy of the Order forwarded to Copy of the Order forwarded to to : to 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)-
ITA No.5215 & 5521/M/2010 & Others 24 M/s. Khandelwal Estates Pvt. Ltd. आयकर आयु�त / CIT 4. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / The DR Concerned Bench, 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार स�या�पत ��त //True Copy//
सहायक पंजीकार (Dy./Asstt. Registrar) उप उप/सहायक पंजीकार उप उप सहायक पंजीकार सहायक पंजीकार आयकर अपील�य अ�धकरण आयकर अपील�य अ�धकरण, आयकर अपील�य अ�धकरण आयकर अपील�य अ�धकरण , , , मुंबई / ITAT, Mumbai / ITAT, Mumbai / ITAT, Mumbai / ITAT, Mumbai