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2016 (2) TMI 419 - ITAT MUMBAI

2016 (2) TMI 419 - ITAT MUMBAI - TMI - Rental income and service charges derived by the assessee from shopping mall/business centre - whether to be assessed as ‘Income from House Property’ or ‘Business Income’ - Held 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 as .....

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t 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 the AO to allocate the cost of amenities even to the area which was not constructed/in existence during the year. We, therefo .....

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e for this purpose. Under such circumstances the different coordinate benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. 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.

Computation .....

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V 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. The deeming fiction of section 50C is not applicable to the transaction in question in the case of the assessee

Claim of interest expenditure allowed as revenue expenditure.

Treatment of income from car parking charges, compensation and other miscellaneous income - whether the .....

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TA No.5479/M/2011, ITA No.4708/2012 - Dated:- 8-1-2016 - SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER For The Assessee : Shri Naresh Jain, A.R. For The Revenue : Smt. Vinita J. Menon, D.R. ORDER 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 relatin .....

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ssessee'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. 2. 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 depre .....

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had simply let out the House Property. 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 ₹ 24,94,553/-, miscellaneous income of ₹ 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 appea .....

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s 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 .....

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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 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 inco .....

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e 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. 7. Grounds No. 5 & 6 are g .....

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y your appellant, thereby reducing the loss to the extent of ₹ 59.12 lakh. 2. 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 proper .....

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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 ₹ 5,33,94,684/ as on 31/03/2003. As on 31/03/2004 the assessee had shown stock of ready premises at ₹ 3,00,95,847/-. The difference of ₹ 2,32,98,8 37/- was transferred to cost of premises sold. 5.1 The property under consideration is situated in phase-II o f t he pro je c t o f the assessee. The total are .....

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. Thus the cost attr ibutable to the area constructed of 8,298 sq. f t X ₹ 1,088/- = ₹ 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 ₹ 15,13,14,320 Average cost per sq.ft. on area of 12,130 sq. ft. ₹ 12,474 Average cost of common amenities per sq.ft. 1088 ₹ 1,088 .....

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f ₹ 97,37,000/- and the cost of sale at ₹ 2,32,98,837/- Thus, there is a loss of ₹ 1,35,61,837/- from this transaction. The excess cost booked in the account resulted in this loss. The excess loss amounting to ₹ 59,12,353/- (Rs. 1,35,61,837 - ₹ 576,49,484/-) is to be disallowed and reduced from the loss shown in P & L account for the purpose of computation of income. 11. Before the Ld. CIT(A), Ld. A.R. of the assessee made the following submissions: The total ar .....

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. The appellant had requested that the disallowance of loss worked out by the AO should be deleted. 12. The Ld. CIT(A), however, did not agree with the contention of the assessee and upheld the working of the AO in this respect. 13. 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 ameni .....

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on the part of 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 ₹ 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 : 14. 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 .....

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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& .....

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hes of this Tribunal have observed that in such cases certain 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 t .....

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e 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. 2. 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. .....

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ts for the portion of building let out of which assessee was the owner. 4. 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'. 5. On the facts and in the circ .....

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d in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made of ₹ 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 . 7. 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 .....

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the computation of notional rent from M/s. Movie Times of ₹ 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 .....

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ation i.e. ₹ 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 .....

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y the assessee has been accepted by the Department. 22. 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. 23. 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 .....

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pital 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 ₹ 2 crores. The assessee had reduced the sale proceeds of ₹ 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, there .....

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2 crores vide MOU dated 01.02.03. The assessee had received the major part of the consideration at ₹ 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 ₹ 3,89,84,500/-. It w .....

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A.Y. 2005-06, however, the AO was duty bound to assess the income in the 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. 200 .....

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laims 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 capita .....

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e 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 applicable. He, thereafter held that as per the provisions of clause (c) of section 43 .....

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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. 27. 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 asses .....

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onsideration 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 .....

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ill 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. 28. 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 fi .....

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n in question in the case of the assessee. This ground of the appeal is decided accordingly in terms indicated above. 29. 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 .....

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essing officer's order with respect to disallowance of Interest on borrowed capital amounting to ₹ 3,40,31,832/-. 2. On the facts and circumstances of the case, the Ld. CIT (A) erred in taking the stamp duty value amounting to ₹ 3,89,84,500/- as sale consideration for the sale of proper ty to "M/s. Movie Time" as against actual sale consideration of ₹ 2,00,00,000/- received by your appellant and accordingly direct the AO to recalculate depreciation after deducting .....

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y 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 di .....

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60 crores. It was further explained that the assessee company had given loans amounting to ₹ 6.20 crores out of which ICDs amounting to ₹ 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 ₹ 48.22 crores, interest free share application money of ₹ 4.08 crores and interest free security deposits of ₹ .....

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g the submissions and evidences furnished by the assessee, the Ld. CIT(A) held that the payment of interest to HDFC at ₹ 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 .....

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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. 36. 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 befo .....

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t 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 al .....

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ed 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 maki .....

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he above stated legal position, we direct the AO to allow the claim of interest expenditure in issue as revenue expenditure. Ground No.2 38. 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. 39. Now coming to the Revenue s appeal for A.Y. 2006-07 bearing ITA No.5522/M/2 .....

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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 ₹ 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 borro .....

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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, comp .....

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taining 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 .....

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venue 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 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 .....

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ctor of the assessee. Considering the circumstances explained therein, we condone the short delay of 22 days in this appeal. 54. The assessee, in this appeal, has agitated the action of the Ld. CIT(A) in confirming the disallowance of share issue expenses of ₹ 3,18,200/-, land tax of ₹ 35,286/- and interest on borrowed capital of ₹ 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 t .....

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fore, has submitted that the disallowance of interest expenditure was not attracted. 55. 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 .....

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