TMI Blog2016 (6) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... his interest income is not relatable to WIP, but it was inadvertently reduced from WIP, but it should be separately taxed as business income. We uphold the order of the Ld. CIT(A) for treating the total interest income as taxable in the year under consideration and also uphold his action in treating same as income from business in the given facts and circumstances of the case. Thus, this ground is dismissed. Addition on account of interest expenses holding the same as business expenditure as against the capital expenses attributable to WIP - HELD THAT:- As already held in earlier part of our order that interest income is not part of WIP and it was assessable separately as business income of the period under consideration. Thus, drawing same analogy, we find that interest expense is also not part of WIP but business expense of the assessee for the period under consideration. The AO had also unfortunately followed double standards while passing the assessment order. When he had treated the interest income as separate income and did not choose to reduce it from the cost of WIP, then there was no justification on his part to treat interest expense as part of WIP and disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to render any service with the help of these amenities. We do not find anything indicating that services provided with the help of these amenities were in any manner distinct from letting out of the property. Under these circumstances, hire charges need not necessarily be separately assessed from rental income. Thus, both of these can be assessed under the head income from house property as part of total rental income. We find that the order of Ld. CIT(A) is justified on facts and law both. Proportionate disallowance of expenses which would have been incurred towards the property which was either let out or gifted - AO made disallowance @ of 25% of the total expenses on the basis of area occupied by the let out properties - HELD THAT:- CIT(A) has made item wise analysis of all the expenses and found that none of these expenses were related to the let out properties or gifted properties. If any expenses were incurred on such type of properties then the same were recovered. It is further noted that Ld. CIT(A) has analysed other expenses also for example professional fee and various other expenses before giving the factual findings that none of these expenses related to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ongoing phase) is attributable to the WIP, and should be reduced from amount of WIP of the project undertaken by the assessee in its proprietorship unit namely M/s Silver Developers, and thus the same was not liable to be included in the taxable income separately. 4.1. The brief facts in this case are that during the year under consideration the assessee through its proprietorship unit namely M/s Silver Developers, entered into the joint venture agreement with M/s. Godrej Properties Investments Ltd. (GPIL) for development of property located at Lokmanya Paan Bazar, Chunabhatti, village Kurla, Mumbai. The project was called as Godrej Coliseum . The amount of investment was to be brought in by both the parties i.e. assessee (herein after called as SD) as well as GPIL. The GPIL was appointed as controller of accounts for controlling the funds of the project, as per mutual agreement. Both the parties were entitled for interest on the funds brought in @ of 18% per annum. Accordingly, GPIL paid interest to SD aggregating to ₹ 2,86,04,353/- on which TDS of ₹ 29,91,102/-was deducted by it. Apart from the said interest income, the assessee also received interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the impugned project was ongoing project, no income was yet realised as no sale consideration was received from the project and therefore impugned amount of interest could not have been treated as income under the provisions of the Income Tax Act. It was also contended by him that no person can earn interest from himself. 4.5. On the other hand, Ld. DR relied upon the orders of the lower authorities and submitted that Ld. CIT(A) has very fairly decided this issue by treating it as income from business . It was further submitted by him that this pleading was never taken by the assessee before the lower authorities that assessee could not have earned interest income from himself. Rather, the assessee has always treated it as an independent transaction. It is also evident from this fact that this amount of interest was paid that the other company namely GIPL and TDS was deducted on this amount. It was further submitted by him that assessee has also paid interest on the funds borrowed for investing in joint venture which has been claimed as expenses. Thus, assessee could not have adopted double standard for giving differential treatment between the interest expenses and interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income as taxable in the year under consideration and also uphold his action in treating same as income from business in the given facts and circumstances of the case. Thus, this ground is dismissed. 5. The appeal filed by the assessee is dismissed. Now we shall take up appeal of the Department in ITA No.6854/Mum/2011 for 2008-09: The revenue has filed following grounds of appeal: 1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 2,16,11,968/-made on account of interest expenses holding the same as business expenditure as against the capital expenses attributable to WIP treated by Assessing Officer. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 18,09,057/- made by the Assessing Officer on account of Notional interest attributable to interest free deposits while computing the income from the House Property of the assessee. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to treat the hire charges of ₹ 77,80,958/- rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained that there is no nexus between the interest bearing funds and the WIP. The appellant had entered into Memorandum of Understanding with Godrej Properties Investments Ltd (GPL) for Joint venture for development of property at Lokmanya Paan Bazar, Kuria. Project- 'Godrej Colisieum . As per the terms conditions of the MOU the interest expenses incurred for the project by the JV was to be added as cost of the project. However interest will be allowed on the working capital or funds introduced by either of the parties. From the details of the interest received and paid furnished it can be seen that assessee has received interest of ₹ 2,90,90,872/- and thereby Assessing Officer disallowed the claim of assessee of reduction of WIP to the extent of interest received. which is dealt in the next ground of appeal in para 9 below. The interest paid of ₹ 2,43,80,067 is not included in the WIP but claimed by the assessee as expenses as the same was not related to the JV account for WIP. As per the terms of the MOU each party is required to bear the interest on the funds borrowed by them for introducing the funds in JV. On the funds lying in the JV interest shall be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to that, it is noted by us that interest income from the same project was held to be income under the head business by Ld. CIT(A). In our view, similar treatment should be given to interest income and interest expense. We have already held in earlier part of our order that interest income is not part of WIP and it was assessable separately as business income of the period under consideration. Thus, drawing same analogy, we find that interest expense is also not part of WIP but business expense of the assessee for the period under consideration. The AO had also unfortunately followed double standards while passing the assessment order. When he had treated the interest income as separate income and did not choose to reduce it from the cost of WIP, then there was no justification on his part to treat interest expense as part of WIP and disallow the same. Thus, taking into totality of facts and circumstances of the case, we find that order of Ld. CIT(A) is well reasoned and thus Ld CIT(A) is justified in treating the interest expenses as having been incurred in the regular course of business and deductible in full as business expense of the period under consideration. We do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer were distinguished by the appellant in the above submission. From the details filed it is seen that the interest free deposits ranges between 9 months to 12 months rent, which is a general practice for letting out the property. There were no abnormal or huge interest free deposits as understood by the Assessing Officer. There cannot be any addition based on interest free deposits. The Assessing Officer has no where taken a view that the actual rent received by the assessee is not Annual Let Out Value (ALV) nor has he given any comparables to determine the ALV. In the absence of any such findings the actual rent received requires to be accepted. Even in the case where rent charged is lower, the provisions relating to computation of property does not permit addition of notional interest to the Income from House Property. The assessee has relied upon following judgments: 1. CIT vs Asian Hotels Ltd 323 ITR 490 (Delhi- FB) 2. Trivoli Investments Trading CO Ltd ITA No 2808/2809/Mum/1996 dated 13.4.2011 3. CIT vs J.K. Investors (Bombay) Ltd 248 ITR 723 (Bom) 4. M. V. Sonavala vs. CIT 177 ITR 246 (Bom.) 5. CIT vs. Prabhabati Bansali 141 ITR 419 (Cal.) 6. Inderson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house property. 8.2. Being aggrieved, the assessee had filed an appeal before the Ld. CIT(A) wherein it was submitted in detail with the help of evidences that property which was given on rent and the amenities were inseparable. The Ld. CIT(A) considered submissions of the assessee in detail and accepted the claim of the assessee by holding the impugned income as income from house property with following observations: I have carefully considered the facts of the case, arguments of the Assessing Officer and the written submissions of the Authorised Representative of the appellant. As per Assessing Officer the appellant had entered into two separate agreements one for rent and another for amenities and not for utilization of the house property, and therefore Assessing Officer taxed the Hire Charges as Income from Other Sources and disallowed the claim of the assessee for taxability under the head Income from House Property. The Authorised Representative has contended that the amenities are integral part of the premises which have been rented. Merely using a different nomenclature does not take away the nature of use of the property. Therefore the amenities are part and parcel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys considered as items of basic necessities. It has been contended before us that the impugned premises could not have been put to use without these amenities. In any case, the main intention of the assessee was stated to be for exploiting the property and not to render any service with the help of these amenities. We do not find anything indicating that services provided with the help of these amenities were in any manner distinct from letting out of the property. Under these circumstances, hire charges need not necessarily be separately assessed from rental income. Thus, both of these can be assessed under the head income from house property as part of total rental income. We find that the order of Ld. CIT(A) is justified on facts and law both. No interference therein is called for and therefore, same is upheld. This ground is dismissed. 9. Ground No.4: This ground relates to proportionate disallowance or ₹ 19,35,921/- made by the AO on the ground that there might be some expenses which would have been incurred towards the property which was either let out or gifted. The AO made disallowance @ of 25% of the total expenses on the basis of area occupied by the let out pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted properties. Respective maintenance charges have been recovered from licensees and persons receiving the gif ted properties and not claimed as expenditure. Therefore this cannot be disallowed. Professional fees claimed is ₹ 16,77,364. From the details it is seen that the expenses are not pertaining to leased gifted property but for legal fees pertaining to rehabilitation buildings, club house etc. The other common expenses are also incurred wholly exclusively for business purpose and hence no proportionate disallowance is called for. The rest of the expenses are not related to the house property income but are incurred for the purposes of appellant's business. Hence no disallowance is called for. The disallowance of ₹ 19,35,921/- is deleted. This ground of appeal is allowed. 9.2. We have gone through the orders of the lower authorities and submissions made by both the sides before us. It is noted that Ld. CIT(A) has made item wise analysis of all the expenses and found that none of these expenses were related to the let out properties or gifted properties. If any expenses were incurred on such type of properties then the same were recovered. It is further n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned expenses related to the period cost of the assessee. 14.3. It was further demonstrated that these expenses were not related to the joint venture project, and these expenses were revenue nature expenses and these were incurred as per the contractual obligations of the assessee. Ld. CIT(A) considered submissions of the assessee in detail and deleted the same by holding as under: I have carefully considered the facts of the case, reasons for addition by the Assessing Officer and the written submission of the Authorised Representative of the appellant As per Assessing Officer the expenditure incurred of ₹ 77,24,739.- is not a period cost but requires to be capitalized for the ongoing project of the appellant pertaining to JV with Godrej Properties Investments Ltd (GPL), The AR has explained substantiated his contention that the said expenditure was not incurred in relation to the Joint Venture with M/s Godrej Properties Investments Ltd. based on the clauses of MOU dated 17.6.1999 with GPL agreement dated 25.7.2002 with Lokmanya Pan Bazar Association Ltd. 4.5 As per the MOU dated 17.6.1999 with M/s Godrej Properties Investments Ltd (GPL) and agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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