DCIT 20(2), MUMBAI V. JAGSHI CHHEDA, MUMBAI

ITA 2012/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1769 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G NAVITHA KUMAR
• Assessee Lawyers: SAMEER G DALAL
• Keywords: Fair market value; Notional interest; Revenue expenditure

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ./ I.T.A. NO. 2012 /MUM/2015 ( / ASSESSMENT YEAR : 2010-11) DY. CIT 20(2), ROOM NO. 217, 2 ND FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI -400012. / V. SHRI JAGSHI J. CHHEDA, PROP. SILVER DEVELOPERS, 9001, MERU HEIGHTS, 268, TELANG ROAD, MATUNGA, MUMBAI 400019. ./ PAN : ACYPC2992B ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI G. NAVITHA KUMAR ASSESSEE BY : SHRI SAMEER G. DALAL / DATE OF HEARING : 29-11-2016 / DATE OF PRONOUNCEMENT : 29-11-2016 / O R D E R PER B.R. BASKARAN, A.M THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 2 012/MUM/2015, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 30 TH JANUARY, 2015 RELATES TO THE A.Y. 2010-11. 2. THE GROUNDS OF APPEAL URGED BY THE REVENUE IN TH E APPEAL RELATE TO (A) CAPITALISATION OF REVENUE EXPENDITURE AMOUNTING TO RS. 49.98 LAKHS, (B) CAPITALIZATION OF INTEREST EXPENDITURE AMOUNTIN G TO RS. 132.28 LAKHS, (C) ADDITION OF NOTIONAL INTEREST TO THE RENTAL INC OME AMOUNTING TO RS. 49.05 LAKHS AND ITA 2012/MUM/2015 2 (D) ASSESSMENT OF HIRE CHARGES AMOUNTING TO RS. 65. 74 LAKHS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 3. `THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN TH E BUSINESS OF CONSTRUCTION ACTIVITIES. THE ASSESSEE HAS DEVELOPE D A PROJECT IN JOINT VENTURE (JV) WITH M/S GODREJ PROPERTIES AND INVESTMENT LTD. FOR DEVELOPMENT OF A PROPERTY LOCATED AT KURLA. THE ASSESSEE HAD CLAIME D CERTAIN EXPENSES AS REVENUE EXPENSES BUT THE A.O. TREATED THE SAME AS E XPENSES RELATED TO JOINT VENTURE PROJECT AND ACCORDINGLY HE CAPITALIZED A PO RTION OF PURCHASE EXPENSES AND INTEREST EXPENSES BY INCLUDING THE SAME IN THE WORK-IN-PROGRESS (WIP). THE LD. CIT(A) GAVE RELIEF AND HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE FIRST ISSUE RELATES TO CAPITALIZATION OF PUR CHASE EXPENSES TO THE TUNE OF RS. 49.98 LAKHS. THE ASSESSEE HAD CLAIMED CIVIL LABOUR CHARGES AND ULC EXPENSES AGGREGATING TO RS. 84.87 LAKHS. THE A.O. TOOK A VIEW THAT THESE EXPENSES ARE RELATABLE TO THE ON-GOING JV PROJECT A ND, HENCE, IT SHOULD HAVE BEEN CAPITALIZED BY THE ASSESSEE. ACCORDINGLY, HE COMPUTED THE PROPORTIONATE AMOUNT OF EXPENSES RELATABLE TO THE CLOSING STOCK O F JV PROJECT AT RS. 49.98 LAKHS AND ADDED TO THE SAME TO THE WIP BY DISALLOWI NG THE CLAIM OF THE ASSESSEE FOR TREATING THE SAME AS REVENUE EXPENDITU RE. THE LD. CIT(A) NOTICED THAT THE ASSESSEE HAS INCURRED THESE EXPENDITURE AS PER CONTRACTUAL OBLIGATION IN THE JOINT VENTURE PROJECT AS PER THE AGREEMENT ENTERED INTO WITH M/S LOKMANYA PAN BAZAR ASSOCIATION LTD. AND M/S GO DREJ PROPERTIES AND INVESTMENT LTD. HE FURTHER NOTICED THAT IDENTICAL D ISALLOWANCE MADE BY THE A.O. IN THE IMMEDIATELY PRECEDING YEAR HAS BEEN ALL OWED BY HIM. ACCORDINGLY, BY FOLLOWING THE DECISION RENDERED BY HIM IN A.Y. 2009-10, THE LD. CIT(A) SET ASIDE THE ORDER OF THE A.O. AND HELD THAT THE ENTIRE CLAIM IF ALLOWABLE AS REVENUE EXPENDITURE. ITA 2012/MUM/2015 3 5. AT THE TIME OF HEARING, IT WAS POINTED OUT TO US THAT THE ORDER PASSED BY THE LD. CIT(A) IN A.Y. 2009-10 WAS CHALLENGED BY TH E REVENUE BY FILING APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL, VIDE ITS ORDE R DATED 24 TH JUNE, 2016 PASSED IN ITA NO. 4760/MUM/2012, HAS UPHELD THE VIE W TAKEN BY THE LD. CIT(A). 6. WE HAVE GONE THROUGH THE ORDER PASSED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL AND NOTICED THAT IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN PARA 14 OF ITS ORDER. WE FURTHER NOTICED THAT T HE TRIBUNAL UPHELD THE VIEW TAKEN BY THE LD. CIT(A) IN PARA 14.4 OF ITS ORDER. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE UPHOLD THE ORDER PASSED BY THE LD . CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF PA RT OF INTEREST EXPENDITURE BY TREATING THE SAME AS RELATING TO WIP. THE A.O., AS IN THE CASE OF PURCHASE EXPENSES, DISALLOWED PART OF INTEREST EXPENDITURE C LAIMED BY THE ASSESSEE BY ALLOCATING THE SAME TO THE ON-GOING PROJECT. BEFOR E THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT THE INTEREST PAID BY IT IS ATTRIBUTABLE TO THE BUSINESS OF EARNING RENTAL INCOME AND NOT ATTRIBUTABLE TO JO INT VENTURE PROJECT. ALTERNATIVELY, IT WAS FURTHER SUBMITTED THAT AS PER THE TERMS ON MOU EACH PARTY WAS REQUIRED TO BEAR INTEREST ON THE FUNDS BO RROWED BY THEM FOR INTRODUCING CAPITAL IN JOINT VENTURE. IT WAS FURTH ER SUBMITTED THAT THE JOINT VENTURE WOULD PAY INTEREST TO THE PARTNERS ON THE F UNDS LYING IN THE NAME OF THE PARTNERS. ACCORDINGLY, IT WAS SUBMITTED THAT T HE INTEREST EXPENDITURE HAD DIRECT NEXUS TO THE FUNDS GIVEN TO THE JOINT VENTUR E FROM WHICH THE ASSESSEE HAS RECEIVED INTEREST INCOME. ACCORDINGLY IT WAS C LAIMED THAT THE A.O. WAS NOT JUSTIFIED IN ALLOCATING THE PART OF INTEREST EX PENDITURE TO THE ON-GOING JOINT VENTURE PROJECT. THE LD. CIT(A) NOTICED THAT HE HAS CONSIDERED AN IDENTICAL ISSUE IN A.Y. 2009-10 AND HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND ACCORDINGLY BY FOLLOWING THE SAME, THE LD. CIT(A) S ET ASIDE THE ORDER PASSED BY THE A.O. ON THIS ISSUE. ITA 2012/MUM/2015 4 8. AT THE TIME OF HEARING, IT WAS POINTED OUT THAT THE ORDER PASSED BY THE LD. CIT(A) IN A.Y. 2009-10 WAS CHALLENGED BY THE RE VENUE BY FILING APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 24 TH JUNE, 2016 PASSED IN ITA NO. 4760/MUM/2012 (SUPRA) HAS UPHELD THE VIEW TAKEN BY THE LD. CIT(A). 9. WE HAVE GONE THROUGH THE ORDER PASSED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL AND NOTICED THAT AN IDENTICAL ISSUE W AS DISCUSSED BY THE TRIBUNAL IN PARA 6 OF ITS ORDER. WE FURTHER NOTICE D THAT THE TRIBUNAL UPHELD THE VIEW TAKEN BY THE LD. CIT(A) IN PARA 6.3 OF IT S ORDER. CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL, WE UPHOLD THE ORDER PAS SED BY THE LD. CIT(A) ON THIS ISSUE. 10. THE NEXT ISSUE RELATES TO THE ADDITION OF NOTIO NAL INTEREST ON INTEREST FREE DEPOSITS RECEIVED FROM LICENCEES OF PROPERTIES . THE ASSESSEE HAS DISCLOSED THE MONTHLY RENTAL OF RS. 3.27 CRORES AND HIRE CHAR GES FOR AMENITIES OF RS. 2.19 CRORES. THE A.O. ALSO NOTICED THAT THE ASSESSE E HAS RECEIVED INTEREST FREE DEPOSITS OF RS. 4.29 CRORES AS RENT DEPOSITS AND RS . 2.21 CRORES AS AMENITIES DEPOSIT. THE A.O. TOOK A VIEW THAT NOTIONAL INTERE ST ON INTEREST FREE DEPOSIT IS REQUIRED TO BE CONSIDERED AS PART OF RENTAL INCOME IN ORDER TO ARRIVE AT A FAIR MARKET VALUE OF RENT U/S 23(1)(A) OF THE ACT. ACCO RDINGLY, THE A.O. COMPUTED THE INTEREST @ 12% ON THE INTEREST FREE DEPOSITS AN D ADDED THE SAME TO THE RENTAL INCOME DECLARED BY THE ASSESSEE. THE LD. CIT (A) DELETED THE SAME BY FOLLOWING HIS DECISION RENDERED FOR A.Y. 2009-10. IN THIS REGARD, THE LD. CIT(A) PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASIAN HOTEL LTD. 323 ITR 490. ITA 2012/MUM/2015 5 11. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR N OTICE THAT AN IDENTICAL ADDITION MADE BY THE A.O. IN A.Y. 2009-10 HAS SINCE BEEN DELETED BY THE TRIBUNAL. 12. WE HAVE GONE THROUGH THE ORDER PASSED BY THE C O-ORDINATE BENCH OF THIS TRIBUNAL FOR A.Y. 2009-10 IN ITA NO. 4960/MUM/ 2010 DATED 24 TH JUNE, 2016 AND NOTICED THAT AN IDENTICAL ISSUE WAS DISCUS SED BY THE TRIBUNAL IN PARA NO. 7 OF ITS ORDER AND IN PARA NO. 7.3 OF THE ORDER, THE TRIBUNAL HAS UPHELD THE VIEW TAKEN BY THE LD. CIT(A). WE HAVE A LSO NOTICED THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE HO NBLE DELHI HIGH COURT IN THE CASE OF ASIAN HOTEL LTD. (SUPRA). ACCORDINGLY, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A) IN THIS YEAR ALSO ON THIS ISSUE. 13. THE LAST ISSUE URGED BY THE REVENUE RELATES TO THE HEAD UNDER WHICH HIRE CHARGES FOR AMENITIES WAS ASSESSABLE. THE ASS ESSEE DECLARED THE HIRE CHARGES RECEIVED BY IT FOR AMENITIES PROVIDED TO TH E LICENCEES OR THE PREMISES. THE A.O. ASSESSED THE SAME UNDER THE HEAD INCOME FR OM OTHER SOURCES. THE LD. CIT(A), HOWEVER, ACCEPTED THE CLAIM OF THE ASSE SSEE AND ACCORDINGLY DIRECTED THE AO TO ASSESS THE HIRE CHARGES UNDER TH E HEAD INCOME FROM HOUSE PROPERTY. 14. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CA SE FOR A.Y. 2009-10 (REFERRED SUPRA) AND THE CO-ORDINATE BENCH OF THIS TRIBUNAL UPHELD THE VIEW TAKEN BY THE LD. CIT(A) IN A.Y. 2009-10. 15. WE HAVE GONE THROUGH THE ORDER PASSED BY THE CO -ORDINATE BENCH OF THIS TRIBUNAL FOR A.Y. 2009-10 IN ITA NO. 4960/MUM/ 2010 DATED 24 TH JUNE, 2016 AND NOTICED THAT AN IDENTICAL ISSUE WAS DISCUS SED BY THE TRIBUNAL IN PARA NO. 8 OF ITS ORDER. WE HAVE FURTHER NOTICED T HAT THE TRIBUNAL HAS ITA 2012/MUM/2015 6 RENDERED THIS DECISION IN PARA 8.3 OF ITS ORDER WHE REIN IT WAS OBSERVED THAT THE AMENITIES PROVIDED BY THE ASSESSEE CONSTITUTED AN INTEGRAL PART OF THE PREMISES, I.E., IT WAS SEEN THAT THE AMENITIES PROV IDED BY THE ASSESSEE CONSISTED OF ELECTRICAL PANELS, AHU ROOMS AND FIRE CONTROL SYSTEM, WATER TANKS, ELEVATOR ETC. IN VIEW OF THE ABOVE, THE TRI BUNAL HAS ACCEPTED THE VIEW OF THE LD. CIT(A) THAT THESE AMENITIES CONSTITUTE I NTEGRAL PART OF THE HOUSE PROPERTY. SINCE THERE IS NO CHANGE IN FACTS, CONSI STENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN AY 2009-10, WE UPHOLD THE ORDER PAS SED BY THE LD. CIT(A) IN THIS YEAR ALSO ON THIS ISSUE. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IN ITA NO. 2012/MUM/2015 FOR THE ASSESSMENT YEAR 2010-11 IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH NOVEMBER , 2016. # $% &' 29-11-2016 ( ) SD/- SD/- (RAVISH SOOD ) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 29-11-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS \ !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI