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2015 (3) TMI 752 - ITAT HYDERABAD

2015 (3) TMI 752 - ITAT HYDERABAD - TMI - Revision u/s 263 - whether order erroneous and prejudicial to the interests of revenue although the twin conditions required to be fulfilled for exercising the jurisdiction are not satisfied - exercise of jurisdiction u/s 263 whether is valid or not? - whether the appellant is not entitled to a deduction u/s 32(iia)? - Held that:- A.O. might have accepted the bifurcation of assessee receipts and offering the incomes under respective heads in the scrutiny .....

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l under the category of difference of opinion. If A.O. has taken one of the opinion available out of the two, the Ld. CIT cannot invoke jurisdiction under section 263. Provisions of section 263 does not permit substituting one opinion by another opinion. Therefore, the order of Ld. CIT cannot be sustained on the principles of ‘erroneous’ nature of A.O. order, as it is not erroneous. - Decided in favour of assessee.

Claim of interest - Held that:- As can be seen from the facts and mate .....

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the show cause notice u/s 263 has specifically alleged of excess claim of interest to the tune of ₹ 557.23 lakhs, but, ultimately he has not at all given any specific finding with regard to such allegation and has merely remitted the issue back to the file of AO for verification. It is to be noted the direction of ld. CIT in this regard is nothing but a general direction and in the nature of roving and fishing inquiry as ld. CIT has not brought any material on record to substantiate his al .....

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e, assessee an Indian company is engaged in the business of real estate and development and leasing of properties. For the AY under consideration, assessee filed its return of income on 27/09/2009 declaring loss of ₹ 10,32,00,788. Assessee s return of income was subjected to scrutiny and AO in course of scrutiny assessment proceeding, examined the books of account and other informations as called for and after verifying them, completed the assessment by assessment order dated 27/12/2011 de .....

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nd maintenance of Software Technology Park the entire rental income and service income derived thereon is incidental to the business and as such the same has to be treated as business income. Therefore the amounts paid by the clients of the assessee for use of the STP would be in the nature of commercial activity assessable under the business. Hence, the expenditure claimed towards maintenance and repair needs to be disallowed. ii)Schedule 16 of profit & loss account shows that the assessee .....

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. In reply to the said show cause notice, assessee submitted its reply in writing as well as through oral submissions in course of the revision proceeding. 3. As far as the first issue is concerned, it was submitted by assessee that the company has been incorporated with the main object to carry on the business of developers of land, building, immovable properties and real estates by constructing, reconstructing, altering, improving, decorating, furnishing and maintaining industrial parks, growt .....

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of industrial park. However, for the purpose of taxation of income received by assessee from its business of operating and maintenance of industrial park, it would be subject to the framework established by section 14 of the Act. In this context, it was submitted by assessee, income received by assessee from its tenants was split into two components; i) lease rental from the premises and ii) facility management charges towards maintenance and up keep of the industrial park and charges for fit ou .....

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as business income. 4. As far as the second issue of excess claim of finance charges is concerned, it was submitted by assessee that industrial park constructed by assessee consisted of 3 buildings. While construction of two buildings has been completed during AY 2009-10, 3rd building was still under construction. During the FY 2008-09, assessee has incurred total finance cost of ₹ 2041.34 lakh, out of this approximately an amount of ₹ 136 lakh represented finance cost in relation t .....

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dings, which were put to use is fully claimed as deduction from rental income. Interest pertaining to the third building is capitalized to the said building. In support of its contention, assessee also furnished the following working: Building No. Interest attr ibutable Treatment in books Treatment for income-tax Capitalized Expensed Capitalized expensed #1 415.28 130.63 284.65 - 415.28 #2 448.85 400.73 48.12 - 448.85 #3 1,040.85 1,040.85 - 1,040.85 - General 136.36 - 136.36 - 136.36 Total 2,041 .....

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business income, then, assessee will be entitled to claim depreciation @ 10% on the total cost of assets of ₹ 300 crores which will be much more than 30% deduction claimed towards repair and maintenance. Moreover, any such computation of depreciation needs to be done from A.Y. 2007-08. Thus, there would no prejudice to the revenue, if the income is assessed as income from house property. 5. Ld. CIT after considering the submissions of assessee vis-à-vis facts and materials on recor .....

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ness, trade, manufacture or process. From the aforesaid object, ld. CIT observed, the profit motive of assessee is inherent. Ld. CIT observed, if assessee was simply letting out property, income would probably have fallen under the income from house property. However, return of income filed reveals, assessee on its own admission has shown the activities as builders/property developers. In the tax audit report also, it is indicated that assessee is in the business of real estate development and l .....

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e commercial assets. Ld. CIT observed, AO even did not examine approval documents before completing assessment. It was observed by ld. CIT, as verified from the accounts, assessee has availed huge project term loan from the bank to construct the buildings. Assessee has spent huge sums as project support fees and also as business promotion expenses, which clearly show that assessee is engaged in systematic activity of building an industrial park and markets the space also by spending huge amounts .....

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ad allotted land to M/s K. Raheja IT Park Ltd. , sister concern of assessee, with a clear stipulation that certain amount of jobs have to be created and in fact incentives were also to be granted for the employment generation, hence, the whole activity is nothing but business activity. According to ld. CIT, as AO did not examine any of these facts and accepted assessee s claim of house property income without any enquiry or verification, the view taken by him not being a judicious view cannot be .....

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s of assessee are buildings, which do not fall under the definition of plant. Ld. CIT, therefore, held that as AO has not examined the issue and also assessee s claim, assessment order is not only erroneous but prejudicial to the interests of revenue. As far as the second issue relating to finance cost is concerned, ld. CIT observed that AO has not made any verification to allow the correct amount. Accordingly, ld. CIT set aside the assessment order and directed AO as under: 5. In light of the a .....

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is set aside to the file of the AO for proper verification and appropriate decision as per law a fter giving an opportunity of being heard to assessee. 7. Being aggrieved, assessee is before us raising the following grounds: Ground 1: Erroneous and Prejudicial order 1.1 The ld. CIT erred in holding that the assessment order dated December 27, 2011, passed by the AO u/s 143(3) of the Act is erroneous and prejudicial to the interests of revenue although the twin conditions required to be fulfilled .....

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income earned on letting out the immovable property is to be assessed as business income and not as income from house property as returned by the appellant and accepted in the assessment proceedings. Ground 3: Depreciation on assets 3.1 Without prejudice to Ground 2, in case the income of the appellant is classified as business income instead of income from house property, the appellant ought to have been allowed depreciation in respect of its assets, including the buildings and fittings and ma .....

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revenue and hence the CIT was not justified in exercising the jurisdiction u/s 63 of the Act. b) The Hon ble Tribunal be pleased to hold that rental receipts are assessable as income from house property and not as business income. c) The Hon ble Triunal be pleased to allow the deduction in respect of the finance cost. 8. At the outset, ld. AR submitted that as far as ground Nos. 1, 2 &3 are concerned, they are covered by the decision of ITAT, Hyderabad Bench in case of assessee s sister con .....

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Hyderabad) P. Ltd. (supra) upheld the assessment order. Ld. AR submitted, if at all, ld. CIT s view that income from lease rental is to be treated as business income, is to be accepted, then, assessee would be entitled for claim of depreciation on the business assets i.e. building which would be much more than deductions claimed towards repairs and interest from house property income. In this context, he referred to the working of unabsorbed depreciation in case income is treated as business inc .....

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ctually there is no such difference as pointed by ld. CIT. However, without examining the working submitted by assessee, ld. CIT has set aside the assessment order and directed AO to verify again. Ld. AR submitted, ld. CIT has not given any specific finding with regard to alleged excess claim made by assessee, on the other hand, direction given by ld. CIT is a general direction in the nature of roving and fishing enquiry, which is not permitted u/s 263. In this context, ld. AR relied on the deci .....

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rk (supra). As far as second issue in Ground No. 4 is concerned, ld. DR submitted that ld. CIT has only directed AO to examine the issue with reference to the books of account and no prejudice is caused to assessee as a result of such direction. 11. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. The first issue is exercise of jurisdiction u/s 263 whether is valid or not. As can be seen, assessee in its account .....

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t lease rental should have been assessed as business income and not as income from house property. 12. The issue whether a particular income is to be assessed as house property income or business income will depend upon the fact of each case as divergent views are available on this issue. Whether lease rental is to be assessed as house property income or business income is a debatable issue on which more than one view is possible. Therefore, if AO has taken a view in treating lease rental as hou .....

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ng out of order passed u/s 263 in case of assessee s sister concern M/s K. Raheja IT Park Hyderabad (P) Ltd. (supra), which is extracted hereunder for convenience: 16. Apart from the above, even on merits, we are of the opinion that the order of A.O. is neither erroneous nor prejudicial to the interests of Revenue so as to revise the same under section 263. Assessee has been consistently offering the incomes under the head Income on House Property as far as the receipts of rents are concerned an .....

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e. As seen from the orders passed by the authorities at the time of assessment, they have accepted the bifurcation of rental income and services income and rental income was accepted under the head House Property . As rightly pointed out by assessee in the submissions before the Ld. CIT that assessing incomes under head Business was not prejudicial to the interests of revenue considering that a higher claim of depreciation was allowable on the properties when compared to 30% allowance for repair .....

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f dealing in real estate and setting up, development and exploitation of commercial complex in market, they have not owned the property but were developing the properties obtained on lease hold or on free hold basis and further leasing the properties after development to the lessees. In those facts of the case, the incomes are correctly held as assessable under the head Business . Further, in the said case of Global Tech Park P. Ltd., (supra), the incomes received were composite incomes for both .....

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ivities/agreements entered by assessee with reference to various lessees and to verify whether rental income is separately received or as a composite rent but bifurcated by assessee. The terms of agreement, the period of lease, the conditions of lease etc., also required to be examined. Therefore, in order to take a decision whether a particular income is to be assessed under the head House Property or under the head Business many more facts are required to be examined. In this case, neither the .....

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t Ltd., vs. CIT on the following facts held as under : The appellant company, which was incorporated with the objects of buying and developing landed properties and promoting and developing markets, purchased 10 bighas of land in the town of Calcutta and set up a market therein. The question was whether the income realized from the tenants of the shops and stalls was liable to be taxed as business Income under section 10 of the Income Tax Act or as income from property under section 9. Held that .....

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the income become profits or gains from business within the meaning of section 10. Nor was the character of the income altered merely because some stalls were occupied by the same occupants and the remaining stalls were occupied by a shifting class of occupants. The primary source of income from the stalls was the occupation of the stalls, and it was a matter of little moment that the occupation which was the source of the income was temporary. Income-tax is undoubtedly levied on the total taxa .....

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ific head set out in s. 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head . 18.2. Thereafter, the Hon ble Supreme Court has another occasion to re-visit the issue in the case of Karnani Properties Ltd., vs. CIT, West Bengal 82 ITR 547 wherein the Hon ble Supreme Court considered the facts and held as under. The assessee-company owned house properties, popularly known as Karnani Mansion in Park Street, Calcutta. The said Karnani M .....

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urchases from the Calcutta Electric Supply Corporation high voltage A.C. current in bulk, converts the same into low voltage A.C. current in the company's own power house within the premises and supplies the power to its tenants. It also maintains a separate water pump-house and a boiler for the supply of hot and cold water to the tenants. The company further provided for the benefit of tenants, electric lifts working day and night. The further finding of the Tribunal was that for all these .....

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hat the second part was assessable as income from business under section 10. Neither the department nor the assessee contended that the part was assessable under section 9. On a reference the High Court held that the latter part of the receipts was also assessable as income from property under section 9. On appeal to the Supreme Court : Held, reversing the decision of the High Court, (i) that the department having all along proceeded on the basis that the income of the assessee was from two diff .....

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e:, it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the statement of fact made by the Tribunal. 18.3. Thus the issue decided by the Hon ble Supreme Court in the above case was that services income was assessable as i .....

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ther real and personal property and to deal with the same commercially. Within less than two weeks of its incorporation the company took on lease a market place for an initial term of 50 years, undertaking to spend ₹ 5 lakhs for the purpose of remodeling and repairing the structure on the site. It was also given the right to sublet the different portions. The appellant s activity during the period covered by the assessment years 1956-57 to 1958-59 consisted of developing the property and l .....

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the definition of business in section 2(4) was of wide amplitude and it could embrace within itself dealing in real property as also the activity of taking a property on lease, setting up a market thereon and letting out shops and stalls in the market; (iii) that, on the facts, the taking of the property on lease and subletting portions thereof was part of the business and trading activity of the appellant and the income of the appellant fell under section 10 of the Act ; and (iv) that where, as .....

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. It would also make no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting up market thereon. The residuary head of income can be resorted to only if none of the specific heads is applicable to the income in question; it comes into operation only after the preceding heads are excluded. 18.4. Thereafter, the Hon ble Supreme Court in the case of Sambhu Investments Pvt. Ltd., vs. CIT 263 ITR 143 a .....

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d Investments Ltd., 274 ITR 117, Hon ble Bombay High Court in the case of Mangala Homes P. Ltd., vs. ITO 325 ITR 281 reiterated the same principles. Even the jurisdictional High Court in the case of PVG Raju Vs CIT 66 ITR 122 following the judgment of Apex Court in the case of East India Housing and Land Development Trust Ltd., (supra), held that a mere fact that the building or shops built with the specific object of forming, developing or setting-up a market did not change the character of inc .....

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rental income under the head Income from House Property and allowing the claims as per that Head rather than allowing depreciation on assets, if it is converted to income from business. Since the A.O. formed an opinion not only in the impugned assessment years but also in earlier years, we are of the opinion that the Ld. CIT opinion that the same is to be assessed as business income will fall under the category of difference of opinion. If A.O. has taken one of the opinion available out of the t .....

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apportionment of interest to house property income as well as business income. As it appears, ld. CIT has not at all applied his mind to the working submitted by assessee. However, on perusal of the working submitted by assessee in course of revision proceeding, clearly demonstrate that actually there is no such excess claim as alleged by ld. CIT in the show cause notice. Ld. CIT while issuing the show cause notice u/s 263 has specifically alleged of excess claim of interest to the tune of S .....

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of CIT Vs. Gabriel India Ltd. (supra) held as under: 9. From a reading of sub-s. (1) of s. 263 it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is "erroneous in so far as it is prejudicial to the interest of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirement l .....

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