M/s Cessna Garden Developers Pvt.Ltd, Bangalore V. The Assistant Commissioner of income tax, Bangalore

ITA 2097/BANG/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5553 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN D GEORGE CIT DR I
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Earning of tax free income; Cost of acquisition; Unabsorbed depreciation
• Section: 143(3); 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI LALIT KUMAR, JUDICIAL MEMBER ITA NO. 2097 / BANG/201 6 ASSESSMENT YEAR : 20 1 0 - 11 M/S. CESSNA GARDEN DEVELOPERS PVT. LTD., THE FALCON HOUSE, NO. 1, MAIN GUARD CROSS ROAD, OFF INFANTRY ROAD, BANGALORE 560 001. PAN: AAACC 8539R VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAM CHAND KHINCHA, CA RESPONDENT BY : MS. SUSAN D. GEORGE, CIT (DR - I) DATE OF HEARING : 20 . 11 .201 7 DATE OF PRONOUNCEMENT : 14 .0 2 .201 8 O R D E R PER SHRI LALIT KUMAR, JUDICIAL MEMBER ASSESSEE FILED THE APPEAL BEFORE THE TRIBUNAL FEELI NG AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A) ON 16.09.2016 ON VARIOUS G ROUNDS. 2. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE INCLUDING DEVELOPMENT OF PROPERTIES. THE APPELLANT ACQUIRED LAND AT KADUBEESANAHALLI VILLAGE, BANGALORE IN AUGUST 2005. THEREAFTER THE APPELLANT STARTED DEVELOPING THE LAND INTO IT AND ITES CAMPUS UNDER THE NAME CE SSNA BUSINESS PARK. THE APPELLANT HAD SECURED THE PERMISSION FROM THE SEZ A UTHORITIES TO DEVELOP THE CESSNA BUSINESS PARK AS SEZ UNIT. FOR THE YEAR END ING 31.03.2010 IT IS THE CASE OF THE APPELLANT THAT THE APPELLANT HAD COMPLE TED FOUR BLOCKS AND M/S. CISCO SYSTEMS (INDIA) PVT. LTD. HAD OCCUPIED THESE BLOCK S AS TENANT. IT IS ALSO THE CASE OF THE ASSESSEE THAT THE REMAINING TWO BLOCKS WERE UNDER CONSTRUCTION FOR ITA NO. 2097/BANG/2016 PAGE 2 OF 12 THE YEAR ENDING UPTO 31.03.2010. THE ASSESSEE WAS ALSO INVOLVED INTO BUSINESS OF CONSTRUCTION OF A HOTEL FOR THE YEAR ENDING 31.0 3.2010. 3. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, H AS RECORDED AT PAGES 2 TO 4 OF THE ORDER THAT THE ASSESSEE COMPANY HAS SHOWN THE F OLLOWING INCOME. 1. INCOME FROM HOUSE PROPERTY LET OUT PROPERTY 1.1 ADDRESS:-CESSNA BUSINESS PARK (SEZ) KADABEESANAHALLI SARJAPUR MARATHAHALLI BANGALORE KARNATAKA - 560087 TENANT NAME: CISCO SYSTEMS (INDIA) PVT LTD GROSS ANNUAL VALUE : 469748640 MUNICIPAL TAXES PAID : 41940161 NET ANNUAL VALUE : 427808479 DED U/S 24-STANDARD DEDUCTION U/S. 24(A) : 128342544 INTEREST ON BORROWED CAPITAL U/S. 24(B) : 278952800 INCOME FROM LET OUT HOUSE PROPERTY (1.1): 20513135 INCOME FROM HOUSE PROPERTY : 20513135 2. INCOME FROM BUSINESS / PROFESSION 2.1 BUSINESS CESSNA GARDEN DEVELOPERS PVT. LTD NO. 1, THE FALCON HOUSE, MAIN GUARD CROSS ROAD BANGALORE NET PROFIT BEFORE TAX (P1) -162434658 ADDITIONS SEC-37-ANY OTHER AMOUNT NOT ALLOWABLE UNDER SECTION 37 COMMISSION PAID : 29421834 DEPRECIATION AS PER PROFIT AND LOSS ACCOUNT : 140067258 TOTAL ADDITIONS U/S. 28 TO 44DA 169489092 EXPENSES CONSIDERED UNDER OTHER HEAD / EXP RELATED TO EXEMPT INCOME EXP. CONSIDERED UNDER OTHER HEAD-INTEREST : 278952 800 EXP. CONSIDERED UNDER OTHER HEAD-PROPERTY TAX : 133 907498 TOTAL EXPENSES CONSIDERED UNDER OTHER HEAD/ 41286 0298 EXP RELATED TO EXEMPT INCOME TOTAL ADDITION-(P2) 582349390 DEDUCTIONS: INCOMES CONSIDERED UNDER OTHER HEAD RENT INCOME : 469748640 INTEREST ON IT REFUND : 2127420 471876060 DEPRECIATION AS PER INCOME TAX ACT -REFER ANNEXURE NO.- 55292 ITA NO. 2097/BANG/2016 PAGE 3 OF 12 TOTAL DEDUCTIONS-P3 471931352 INCOME FROM BUSINESS/PROFESSION-B1=(P1+P2+P3) - 52016620 3. INCOME FROM OTHER SOURCES 3.1 INTEREST ON OTHERS 1. INTEREST FROM INCOME-TAX-INTEREST ON IT REFUND : 2127420 212740 INCOME FROM OTHER SOURCES 2127420 UNADJUSTED CURRENT YEAR LOSS CARRIED FORWARD: 1. BUSINESS DEPRECIATION 55292 55292 --------------------------------------------------- --------------------------------------------------- ---- GROSS TOTAL INCOME : 0 DEDUCTION U/S VIA DESCRIPTION GROSS QUALIFYING DEDUCTABLE 80IA -DEDUCTION TO CERTAIN INDUSTRIAL UNDERTAKINGS ENGAGED IN INFRASTRUCTURE DEVELOPMENT 1. INDUSTRIAL PARK AND SEZS(RENTAL INCOME FROM HOUSE PROPERTY IN SEZ) 235088799 235088799 235088799 235088799 TOTAL DEDUCTIONS NIL --------------------------------------------------- --------------------------------------------------- ---------- TOTAL INCOME 0 --------------------------------------------------- --------------------------------------------------- ---------- TAX ON TOTAL INCOME 0 EXPENDITURE RATES & TAXES 28,465 PROPERTY TAX (REFER NOTE B11 OF SCHEDULE 12) 13 ,39,07,498 AUDITORS REMUNERATION (REFER NOTE B10 OF SCHEDULE 1 2) 1,25,000 DONATIONS 25,00000 LEGAL & PROFESSIONAL CHARGES 3,57,870 REPAIRS & MAINTENANCE 3,550 COMMISSION 2,94,21,834 INSURANCE 4,53,445 MISCELLANEOUS EXPENSES 5,19,235 FINANCIAL EXPENSES (NET) 32,69,26,563 DEPRECIATION 14,00,67,258 ------------------------------ 63,43,10,718 --------------------------- ITA NO. 2097/BANG/2016 PAGE 4 OF 12 4. ON THE BASIS OF THE ABOVE THE ASSESSING OFFICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DECLARED THE RENTAL INCOME ON THE PROPERTY OF CESSNA BUSINESS PARK BY DECLARING THE A NNUAL VALUE AS RS. 46,97,48,640/- TO M/S. CISCO SYSTEMS INDIA PVT. LTD . AS IS CLEAR FROM THE FINANCIAL IT IS MENTIONED THAT THE ASSESSEE HAS EARNED MAINL Y THE RENTAL INCOME BY RENTING THE PROPERTY TO THE EXTENT OF RS. 46,97,48,640/- AN D ALSO CLAIMED DEDUCTION TO MUNICIPAL TAXES OF RS. 4,19,40,161/- AND DEDUCTION U/S. 24 (A) & (B) IT WAS CONCLUDED THAT THE NET INCOME FROM THE HOUSE PROPER TY WAS RS. 2,05,13,135/-. IT WAS OBSERVED BY THE ASSESSING OFFICER FROM THE FINA NCIAL THAT ON THE ONE HAND THE ASSESSEE WAS CLAIMING THIS STANDARD DEDUCTION U /S. 24 OF THE IT ACT AND ON THE OTHER HAND THE ASSESSEE IS ALSO CLAIMING THE RE NT RECEIPT AS BUSINESS RECEIPT AND IS ALSO CLAIMING THE EXPENDITURE TO THE EXTENT OF RS. 63,43,10,718/- UNDER PROFIT AND GAINS OF BUSINESS AND PROFESSION . THE ASSESSING OFFICER HAS ASKED THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS AS TO HOW THE RENTAL RECEIPT CAN BE TREATED AS BUSINESS INCOME AND WHY I T SHOULD NOT BE DISALLOWED. IN RESPONSE TO THAT THE ASSESSEE, HAS MENTIONED AS UNDER. YOUR GOODSELVES HAVE ASKED US TO GIVE REASONS FOR N OT OFFERING RENTAL INCOME UNDER BUSINESS INCOME. IN THIS REGARD WE WIS H TO DRAW YOUR KIND ATTENTION TO THE LEASE AGREEMENTS ENCLOSED AS ANNEXURE-L YOUR GOODSELVES WILL APPRECIATE THE FACT THAT THE INCOME DERIVED IS FROM MERE LETTING OUT OF COMMERCIAL SPACE TO CISCO. THIS INCO ME IS DERIVED OUT OF AN ASSET CAPITALIZED AS BUILDING IN THE BOOKS. W E HAVE DURING THE YEAR UNDER REVIEW, NOT CLAIMED DEPRECIATION ON THE SAID ASSET AS THE SAME IS NOT AN ALLOWABLE DEDUCTION U/S 24. FURTHER WE ALSO WOULD LIKE TO INFORM YOU THAT ASSESSMENT U/S 143(3) FOR A.Y.2009-10 WAS ALSO CONCLUDED TREATING THE RENTAL INCOME RECEIVED UNDER INCOME FR OM HOUSE PROPERTY AND NOT BUSINESS INCOME. IF YOUR GOODSELF STILL PRO POSE TO BRING THE INCOME OFFERED UNDER HOUSE PROPERTY AS BUSINESS INC OME, DEPRECIATION ON THE SAID ASSET SHOULD ALSO BE ALLOWED. THIS IS E XPLICITLY MADE CLEAR BY EXPLANATION 5 TO SECTION 32(1) OF THE ACT. 5. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE REASONING GIVEN BY THE ASSESSEE AND THEREFORE DISALLOWED THE BUSINESS LOSS ES TO THE TUNE OF RS. 5,20,16,620/- AND TREATED THE ENTIRE RENTAL RECEIPT AS INCOME FROM THE HOUSE PROPERTY. AFTER TREATING THE RENTAL INCOME AS INCO ME FROM THE HOUSE PROPERTY, THE ASSESSING OFFICER EXAMINED THE DEDUCTION CLAIME D U/S. 24 OF THE IT ACT. THE ASSESSEE HAS CLAIMED THESE FOLLOWING DEDUCTIONS U/S . 24 OF THE IT ACT. ITA NO. 2097/BANG/2016 PAGE 5 OF 12 1) MUNICIPAL TAXES PAID RS. 4,19,40,161/- 2) INTEREST ON BORROWED CAPITAL U/S. 24(B) RS. 27 ,89,52,800/- 6. IT WAS MENTIONED BY THE ASSESSING OFFICER THAT T HE ASSESSEE WAS ASKED TO FURNISH THE DETAIL OF INTEREST PAID HOWEVER THE ASSESSEE HA S NOT FILED ANY EVIDENCE OF PAYMENT OF INTEREST FROM THE BANK AND HAS ONLY PROD UCED THE LEDGER FOR THE PAYMENT OF EMI TO THE BANK. THE ASSESSING OFFICER HAS EXAMINED THE LOAN AGREEMENT AND IT WAS FOUND THAT THE ASSESSEE HAS A VAILED LOAN OF RS. 91,00,00,000/- FROM THE HDFC BANK VIDE LOAN AGREEME NT DATED 29.09.2006. INTERESTINGLY THE PURPOSE OF TAKING THE LOAN WAS NO T MENTIONED IN THE LOAN AGREEMENT THEN THE ASSESSING OFFICER ASKED THE ASSE SSEE TO FURNISH THE DETAILS AS TO FOR WHAT PURPOSES THE LOAN WAS AVAILED. HOWE VER THE SAME WAS NOT FURNISHED BY THE ASSESSEE . FURTHER THE ASSESSEE H AS ALSO AVAILED THE LOAN OF RS. 70 CRORES AND RS. 49 CRORES FROM HDFC BANK VIDE LOAN AGREEMENT DATED 28.03.2008. THE PURPOSE OF LOAN WAS MENTIONED AS PROJECT FINANCED MEANS BUILDING BEARING BLOCK NOS. C, D, CLUB HOUSE AND SE RVICE BLOCKS IN THE PROJECT NAMELY CESSNA BUSINESS PARK. ON THE BASIS OF THE DOCUMENTS SUBMITTED BY THE ASSESSEE, THE ASSESSING OFFICER HAD CONCLUDED THAT WING B1 AND B2 WERE COMPLETED ON 07.04.2007, WING B3 WAS COMPLETED ON 2 7.12.2007 AND WING B4 WAS COMPLETED ON 13.11.2008. ON THE BASIS OF DOCUM ENTS SUBMITTED BY THE ASSESSEE, VIZ., THE LOAN AGREEMENT DATED 28.03.2008 AND THE OTHER EVIDENCES, THE ASSESSING OFFICER CONCLUDED THAT THOUGH THE ASS ESSEE HAS AVAILED LOAN OF RS. 119 CRORES ON 28.03.2008 BUT PRIOR THERETO WING B1, B2 AND B3 WERE ALREADY COMPLETED AND THERE WAS NO OCCASION TO USE THESE LO ANS THEREFORE IT WAS NOTED THAT RS. 119 CRORES COULD HAVE BEEN USED BY THE ASS ESSEE FOR COMPLETING THE WING B4 , AND AS SUCH IT WAS NOT POSSIBLE TO USE IT IN A SPAN OF 7 TO 8 MONTHS FROM THE DATE OF AVAILING THE LOAN. THE ASSESSING OFFICER, HAS CONCLUDED THAT THE ENTIRE LOAN OF RS. 119 CRORES WAS NOT UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF 4 TH BLOCK FOR WHICH RENTAL INCOME WAS OFFERED TO TAX O F RS. 27,89,52,800/- AND ACCORDINGLY THE ASSESSING OFFICER HAS DISALLOWED TH E 25% OF THE INTEREST ON THE BORROWED CAPITAL U/S. 24(B) OF THE IT ACT. FEELING AGGRIEVED BY THE DENIAL OF BENEFIT U/S. 24(B) FOR THE AMOUNT OF RS. 6,97,38,20 0/- AND THE BUSINESS LOSSES OF RS. 5,20,16,620/- THE ASSESSEE FILED THE APPEAL BEF ORE THE LD. CIT(A) FOR VARIOUS ITA NO. 2097/BANG/2016 PAGE 6 OF 12 GROUNDS. HOWEVER THE LD. CIT(A), WAS NOT CONVINCED WITH THE REASON GIVEN BEFORE HER AND WITH RESPECT TO AND HENCE RECORDED T HE FINDING IN PARAS 5.4, 5.5, 6.1, 7.1 AND 7.2 TO THE FOLLOWING EFFECT. THESE PA RAS ARE HELD AS UNDER. 5.4 UNDER SUCH FACTS, AND IN ABSENCE OF ANY OTHER B USINESS, THE CLAIM OF BUSINESS EXPENSES AND INTEREST EXPENSES (OTHER T HAN THAT ALLOWED UNDER PARA 3) IS AGAINST THE CONSTRUCTION/DEVELOPME NT OF BUSINESS PARK ONLY, WHICH HAVE BEEN LET OUT AND DECLARED AS 'INCO ME FROM HOUSE PROPERTY'. THEREFORE, EXPENSES CLAIMED AS INTEREST AND OTHER EXPENSES CANNOT BE ALLOWED AS BUSINESS INCOME, AND THESE HAV E TO BE CAPITALISED TOWARDS THE COST OF THE BUILDING (TO THE EXTENT ALL OWABLE)AND ARE TO BE ALLOWED AGAINST THE SAID BUILDING ONCE IT IS READY TO YIELD INCOME (AS EITHER 30% OF STANDARD DEDUCTION AGAINST HOUSE PROP ERTY INCOME) OR AGAINST BUSINESS INCOME (IN CASE IT IS A CASE OF IN COME FROM PROFITS OF BUSINESS OR CAPITAL GAINS (AS COST OF ACQUISITION) AS THE CASE MAY BE. 5.5 IN THIS CASE, THE APPELLANT HAS CONSISTENTLY BE EN CLAIMING INCOME AS 'INCOME FROM HOUSE PROPERTY' AND STANDARD DEDUCTION U/S 24(A) HAS ACCORDINGLY BEEN ALLOWED TO IT YEAR AFTER YEAR. IN ADDITION, THE CLAIM OF EXPENSES UNDER INTEREST AND OTHER EXPENSES WHICH CANNOT BE ATTRIBUTABLE TO ANY OTHER BUSINESS BEING RUN BY THE APPELLANT CANNOT BE ALLOWED. 6. WHETHER EXPENSES OF INTEREST RS. 4,57,23,763 CLA IMED UNDER BUSINESS EXPENSES AND HELD AS NOT ALLOWABLE AT PARA 5 ABOVE IS ALLOWABLE AGAINST INCOME FROM HOUSE PROPERTY AS INT EREST EXPENDITURE U/S 24(B)? 6.1 THE APPELLANT IS UNABLE TO SHOW THAT THESE HAVE BEEN LAID OUT IN RESPECT OF THE HOUSE PROPERTY WHICH HAS BEEN LET OU T AND FOR WHICH INCOME IS DECLARED AS INCOME FROM HOUSE PROPERTY. U NDER SUCH FACTS, I AM UNABLE TO GIVE ANY FINDING IN FAVOUR OF THE APPE LLANT FOR THIS ADDITIONAL CLAIM MADE DURING THE COURSE OF APPEAL. 7. WHETHER THE ALTERNATE CLAIM OF THE APPELLANT THA T INCOME SHOULD BE ALLOWED AS INCOME FROM 'PROFITS OF GAINS OF BUSINES S' CAN BE CONSIDERED? 7.1 CONSIDERING THAT THE APPELLANT HAS BEEN CLAIMIN G INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' YEAR AFTER YEAR ( AS SHOWN AT PARA 3 ABOVE) AND HAS BEEN ALLOWED STANDARD DEDUCTION U/S 24(A) OF 30% IN THIS REGARD, GOING BACK AND MAKING A CLAIM THAT THI S SHOULD NOW BE TREATED/ALLOWED AS 'BUSINESS INCOME' IS NOT IN ORDE R. THE SAME CANNOT BE ACCEPTED. ALSO THE CLAIM OF THE APPELLANT IN SUB MISSIONS FILED ON 22.7.2015 THAT 6. WHITE FILING THE RETURN OF INCOME, SINCE THE RE NTAL INCOME WAS OFFERED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' , THE APPELLANT DID NOT CLAIM DEPRECIATION ALLOWANCE UNDER SECTION 32 I N RESPECT OF THE BUILDINGS LET OUT ON RENT. THE SAID DEPRECIATION WA S ALSO NOT CLAIMED ITA NO. 2097/BANG/2016 PAGE 7 OF 12 IN COMPUTING THE INCOME/LOSS UNDER THE HEAD 'PROFIT S AND GAINS OF BUSINESS'. ASSUMING WITHOUT ADMITTING THAT THE ENTI RE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS, THE APPELLANT WOULD BE ELIGIBLE OR DEPRECIATION ALLOWANCE ON BUIL DINGS UNDER SECTION 32 OF THE ACT AND DEDUCTION UNDER SECTION 80 IAB IN RESPECT OF RENTAL INCOME DERIVED FROM DEVELOPMENT OF A SEZ (PROVIDED THERE ARE PROFITS) EVEN THOUGH 30% OF NET ANNUAL VALUE UNDER SECTION 2 4(B) AMOUNTING TO RS. 12,83,42,544 WOULD NOT BE ALLOWABLE IF THE RENT AL INCOME IS ASSESSED TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S', DEPRECIATION UNDER SECTION 32 WOULD BE ALLOWABLE IN RESPECT OF T HE WRITTEN DOWN VALUE OF THE BUILDINGS. GROSS BLOCK OF BUILDINGS AS ON 31ST MARCH 2010 AS PER FINANCIALS AMOUNTED TO RS. 298,28,64,788. EV EN IF ONE WERE TO ROUGHLY CALCULATE 10% DEPRECIATION ON 70% OF 298,28 ,64,788 (BEING 3RD YEAR OF OPERATION) THE SAME AMOUNTS TO RS. 20,8 8,00,535. THE DEPRECIATION SO COMPUTED WOULD BE MORE THAN 30% DED UCTION ALLOWABLE UNDER SECTION 24(B0. CONSEQUENTLY, LOSS/ UNABSORBED DEPRECIATION ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' IF RENTAL INCOME WERE TO BE TREATED AS BUSINESS INC OME, WOULD BE HIGHER THAN THE LOSS CARRIED FORWARD IN THE RETURN OF INCO ME.' CANNOT BE CONSIDERED. IT IS NOT OPEN TO THE APPELLA NT TO CHANGE ITS STAND NOW AFTER AVAILING OF THE BENEFIT UNDER INCOM E FROM HOUSE PROPERTY YEAR AFTER YEAR AND ALSO IN SUBSEQUENT YEA RS MERELY AS THE WRONG OR DOUBLE CLAIM HAS BEEN NOTICED AND POINTED OUT BY THE AO. 7.2 UNDER SUCH FACTS OF THE CASE, FOR THE YEAR IN Q UESTION, IN ABSENCE OF ANY OTHER BUSINESS CARRIED OUT BY THE APPELLANT, TH E ACTION OF THE ASSESSING OFFICER IN DISALLOWING INTEREST EXPENSES OF RS. 6,97,38,200 CLAIMED IN EXCESS U/S 24(B)AND IN NOT ALLOWING LOSS UNDER PROFITS FROM BUSINESS AND PROFESSION OF RS. 5,20,16,620 IS UPHEL D WITH THE ABOVE FINDINGS AND OBSERVATIONS. 7. NOW THE ASSESSEE HAD FILLED APPEAL BEFORE US ON THE GROUNDS MENTIONED IN THE MEMO OF APPEALS. BEFORE US LD AR HAD VEHEMENTLY ARG UED THE CASE AND REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHOR ITY AND FURTHER HE RELIED UPON BOARD CIRCULAR TO SUPPORT THAT THE INCOME FROM LETTING OUT SHOULD BE TREATED AS BUSINESS INCOME. THE LD DR HAS SUBMITTED THAT TH E CIT (A) HAS APPLIED THE CORRECT LAW ON FACTS AND THEREFORE RELIED ON THE OR DER PASSED BY LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORD AND CAREFULLY CONSIDERED THE SUBMISSION MADE BEFORE US. FOR THE PURPOSE OF DECIDING THE APPEALS, IT IS NECESSARY FOR US TO DETERMINE WH ETHER THE INCOME EARNED BY THE ASSESSEE BY LETTING OUT THE PROPERTY WAS REQUIR ED TO BE TREATED AS INCOME FROM THE HOUSE PROPERTY OR IT IS REQUIRED TO BE TRE ATED AS INCOME PROFIT AND GAIN OF BUSINESS OR PROFESSION U/S. 28 OF IT ACT. WE AR E SAYING SO IF WE DECIDE THAT ITA NO. 2097/BANG/2016 PAGE 8 OF 12 THE INCOME TO BE TREATED AS INCOME FROM HOUSE PROP ERTY THEN THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER CHAPTER (INCOME FROM HO USE PROPERTY) THEN THE DEDUCTION FORMING PART OF CHAPTER IV COMPUTATION O F TOTAL INCOME FROM HOUSE PROPERTY U/S. 24(2), 25, 25A, 25AA, 27 ETC. ARE AVA ILABLE AND IF WE HOLD THAT THE INCOME FROM THE HOUSE PROPERTY IS REQUIRED TO BE TR EATED AS BUSINESS INCOME U/S. 28, THEN THE CONSEQUENCES AS MENTIONED IN CHAPTER D FOR PROFIT AND GAINS OF THE BUSINESS PROFIT UNDER CHAPTER 4 COMPUTATION OF BUSI NESS INCOME SHALL BE AVAILABLE INCLUDING THE PROVISIONS OF SECTION 36(1) (3), SECTION 32, SECTION 37, SECTION 38 ETC. AT THE OUTSET THE LD. AR HAS BROUG HT TO OUR NOTICE THE CIRCULAR ISSUED BY THE MINISTRY OF FINANCE, DEPARTMENT OF RE VENUE BEING CIRCULAR NO. 16/2017 DATED 25.04.2017 WHEREBY IT WAS HELD THAT IN THE CASE OF AN UNDERTAKING WHICH DEVELOPS, DEVELOPS AND OPERATES OR MAINTAINS AND OPERATES AN INDUSTRIAL PARK / SEZ, THEN IN THAT CASE THE INCOME FROM LETTI NG OUT OF PREMISES / DEVELOPED SPACE ALONG WITH OTHER FACILITIES IN AN INDUSTRIAL PARK / SEZ IS TO BE CHARGED TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. FO R THE CONVENIENCE WE ARE REPRODUCING THE CIRCULAR CITED BY THE LD. AR TO THE FOLLOWING EFFECT. THE ISSUE WHETHER INCOME ARISING FROM LETTING OUT O F PREMISES /DEVELOPED SPACE ALONG WITH OTHER AMENITIES IN AN I NDUSTRIAL PARK/SEZ IS TO BE CHARGED UNDER HEAD 'PROFITS AND GAINS OF B USINESS' OR UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' HAS BEEN SUBJ ECT MATTER OF LITIGATION IN RECENT YEARS. ASSESSEES CLAIM THE LET TING OUT AS BUSINESS ACTIVITY, THE INCOME ARISING FROM WHICH TO BE CHARG ED TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS', WHEREAS THE A SSESSING OFFICERS HOLD IT TO BE CHARGEABLE UNDER THE HEAD 'INCOME FRO M HOUSE PROPERTY'. 2. THE MATTER HAS BEEN CONSIDERED BY THE BOARD. INCOME FROM THE INDUSTRIAL PARKS/ SEZ ESTABLISHED UNDER VARIOUS SCH EMES FRAMED AND NOTIFIED UNDER SECTION 80IA(4)(III) OF THE INCOME-T AX ACT, 1961 (`ACT') IS LIABLE TO BE TREATED AS INCOME FROM BUSINESS PROVID ED THE CONDITIONS PRESCRIBED UNDER THE SCHEMES ARE MET. IN THE CASE OF VELANKANI INFORMATION SYSTEMS PVT LT D , THE HON'BLE KARNATAKA HIGH COURT OBSERVED THAT ANY OTHER INTERP RETATION WOULD DEFEAT THE OBJECT OF SECTION 80IA OF THE ACT AND GO VERNMENT SCHEMES FOR DEVELOPMENT OF INDUSTRIAL PARKS IN THE COUNTRY. SLP S FILED IN THIS CASE BY THE DEPARTMENT HAVE BEEN DISMISSED BY THE HON'BL E SUPREME COURT. IN A SUBSEQUENT JUDGMENT DATED 30.04.2014 IN ITA NO 76 & 78/2012 IN THE CASE OF CIT VS. INFORMATION TECHNOLOGY PARK LTD. 2 , THE KARNATAKA HIGH COURT HAS REAFFIRMED ITS. EARLIER VI EWS. IT HAS HELD THAT, SINCE THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF DEVELOPING, OPERATING AND MAINTAINING AN INDUSTRIAL PARK AND ITA NO. 2097/BANG/2016 PAGE 9 OF 12 PROVIDING INFRASTRUCTURE FACILITIES TO DIFFERENT CO MPANIES AS ITS BUSINESS, THE LEASE RENT RECEIVED BY THE ASSESSEE F ROM LETTING OUT BUILDINGS ALONG WITH OTHER AMENITIES IN A SOFTWARE TECHNOLOGY PARK WOULD BE CHARGEABLE TO TAX UNDER THE HEAD 'INCOME F ROM BUSINESS' AND NOT UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' . THE JUDGEMENT HAS BEEN ACCEPTED BY THE BOARD. 3. IN VIEW OF THE ABOVE, IT IS NOW A SETTLED POSITION THAT IN THE CASE OF AN UNDERTAKING WHICH DEVELOPS, DEVELOPS AND OPERATE S OR MAINTAINS AND OPERATES AN INDUSTRIAL PARK/SEZ NOTIFIED IN ACC ORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE GOVERNMENT, THE I NCOME FROM LETTING OUT OF PREMISES/ DEVELOPED SPACE ALONG WITH OTHER F ACILITIES IN AN INDUSTRIAL PARK/SEZ IS TO BE CHARGED TO TAX UNDER T HE HEAD 'PROFITS AND GAINS OF BUSINESS'. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED B Y THE DEPARTMENT ON THE ABOVE SETTLED ISSUE AND THOSE ALREADY FILED MAY BE WITHDRAWN/ NOT PRESSED UPON. 5. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCE RNED. 9. NOW WE ARE EXAMINING THE UNDISPUTED FACT BEFORE US. IT IS UNDISPUTED BY THE PARTIES BEFORE US THAT THE ASSESSEE HAD ACQUIRED TH E LAND FOR THE PURPOSES OF SETTING UP OF THE COMPLEX, IT IS ALSO NOT DISPUTED THAT THE ASSESSEE STARTED DEVELOPING THE LAND UNDER THE NAME OF CESSNA BUSINE SS PARK DURING THE FINANCIAL YEAR 2004-05. IT IS ALSO NOT DISPUTED TH AT THE APPELLANT SECURED THE PERMISSION FROM THE SEZ AUTHORITIES TO DEVELOP THE CESSNA BUSINESS PARK AS SEZ UNIT. IT IS ALSO NOT DISPUTED THAT THE APPELLA NT IS EARNING RENTAL INCOME BY LETTING OUT THE DEVELOPED PROPERTY FROM M/S. CISCO SYSTEMS (INDIA) PVT. LTD.. THUS IN OUR VIEW ALL THE INGREDIENTS HAS CONTEMPLAT ED UNDER THE CIRCULAR NO. 16/2017 RELIED BY THE LD. AR, ARE IN PLACE . THERE FORE PRIMA FACIE WE ARE OF THE OPINION THAT THE INCOME EARNED BY THE ASSESSEE FROM THE LETTING OUT OF THE PREMISES FOR DEVELOPED SPACE IS REQUIRED TO BE CHAR GED UNDER THE TAX UNDER THE HEAD PROFITS AND GAINS FROM THE BUSINESS. FURTHER AS PER THE BRIEF NOTE OF THE BUSINESS ACTIVITIES PLACED AT PAGE NO. 92 OF THE PA PER BOOK IT IS MENTIONED AS UNDER. THE COMPANY SINCE MARCH'04 STARTED ACQUIRING CONVER TED LAND AT KADABEESANAHALLI VILLAGE, BANGALORE AND THE PROCESS OF ACQUISITION WAS COMPLETED IN AUGUST'05. THE LAND IS UNDER DEVEL OPMENT AS AN IT & ITES CAMPUS AND THE COMMENCEMENT OF THE SAME WAS IN THE YEAR 2004-05. WE HAVE ALSO GOT THE SEZ APPROVAL FOR THE SAID DEVELOPMENT. THE WHOLE OF THE DEVELOPMENT IS AN APPROVED SEZ AND WILL BE RETAINED ITA NO. 2097/BANG/2016 PAGE 10 OF 12 AND LET OUT TO IT & ITES COMPANIES. THE DEVELOPMENT IS HAPPENING IN A PHASED MANNER AND AT PRESENT WE HAVE COMPLETED 6 BLOCKS. CISCO HAVE ALREADY TAKEN UP THE SPACE ON LEASE. THEY HAVE ALSO AGREED TO TAKE UP THE FUTURE DEVELOPMENTS WHICH ARE IN PROGRESS CO MPRISING OF 2 MORE BLOCKS. 10. NOW WE EXAMINE THE APPLICABILITY OF THE JUDGEME NT OF HONBLE SUPREME COURT RENDERED IN THE CASE OF CHENNAI PROPERTIES & INVEST MENTS LTD. VS. CIT AS REPORTED IN 373 ITR 673. FOR THE SAKE OF READY REF ERENCE, WE REPRODUCE PARA NOS. 5, 10 AND 11 OF THIS JUDGEMENT. THE SAME ARE AS UNDER. 5. THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT-COMP ANY WHICH IS PLACED ON RECORD MENTIONS MAIN OBJECTS AS WELL A S INCIDENTAL OR ANCILLARY OBJECTS IN CLAUSE III. (A) AND (B) RESPEC TIVELY. THE MAIN OBJECT OF THE APPELLANT COMPANY IS TO ACQUIRE AND HOLD THE PROPERTIES KNOWN AS 'CHENNAI HOUSE' AND 'FIRHAVIN ESTATE' BOTH IN CH ENNAI AND TO LET OUT THOSE PROPERTIES AS WELL AS MAKE ADVANCES UPON THE SECURITY OF LANDS AND BUILDINGS OR OTHER PROPERTIES OR ANY INTE REST THEREIN. WHAT WE EMPHASISE IS THAT HOLDING THE AFORESAID PROPERTI ES AND EARNING INCOME BY LETTING OUT THOSE PROPERTIES IS THE MAIN OBJECTIVE OF THE COMPANY. IT MAY FURTHER BE RECORDED THAT IN THE RET URN THAT WAS FILED, ENTIRE INCOME WHICH ACCRUED AND WAS ASSESSED IN THE SAID RETURN WAS FROM LETTING OUT OF THESE PROPERTIES. IT IS SO RECO RDED AND ACCEPTED BY THE ASSESSING OFFICER HIMSELF IN HIS ORDER. 10. NO DOUBT IN SULTAN BROTHERS (P.) LTD.'S CASE (SUPRA ), CONSTITUTION BENCH JUDGMENT OF THIS COURT HAS CLARIFIED THAT MER ELY AN ENTRY IN THE OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHE THER THE INCOME IS TO BE TREATED AS INCOME FROM BUSINESS AND SUCH A QU ESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE, VIZ., W HETHER A PARTICULAR BUSINESS IS LETTING OR NOT. THIS IS SO STATED IN TH E FOLLOWING WORDS: 'WE THINK EACH CASE HAS TO BE LOOKED AT FROM A BUSI NESSMAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS T HE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER. WE DO NOT FURTHER THINK THAT A THING CAN BY ITS VERY NATU RE BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY AN ASS ET USED IN A BUSINESS AND NOTHING ELSE, AND BUSINESS MAY BE CARR IED ON WITH PRACTICALLY ALL THINGS. THEREFORE, IT IS NOT POSSIB LE TO SAY THAT A PARTICULAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCE RNED WITH AN ASSET WITH WHICH TRADE IS COMMONLY CARRIED ON. WE F IND NOTHING IN THE CASES REFERRED, TO SUPPORT THE PROPOSITION T HAT CERTAIN ASSETS ARE COMMERCIAL ASSETS IN THEIR VERY NATURE.' 11. WE ARE CONSCIOUS OF THE AFORESAID DICTA LAID DOWN I N THE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON, WE HAVE, AT THE BEGINNING OF THIS JUDGMENT, STATED THE CIRCUMSTANCE S OF THE PRESENT CASE FROM WHICH WE ARRIVE AT IRRESISTIBLE CONCLUSION THA T IN THIS CASE, LETTING ITA NO. 2097/BANG/2016 PAGE 11 OF 12 OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THEREFORE, RIGHTLY DISCLOSED THE INCOME UNDER THE H EAD INCOME FROM BUSINESS. IT CANNOT BE TREATED AS 'INCOME FROM THE HOUSE PROPERTY'. WE, ACCORDINGLY, ALLOW THIS APPEAL AND SET ASIDE THE JU DGMENT OF THE HIGH COURT AND RESTORE THAT OF THE INCOME TAX APPELLATE TRIBUNAL. NO ORDERS AS TO COSTS. 11. IN PARA NO. 9 ABOVE, WE HAVE NOTED DOWN CERTAIN FACTS WHICH ARE UNDISPUTED BUT STILL WE FIND THAT THE COPY OF MEMORANDUM OF ASSOCI ATION OF THE ASSESSEE COMPANY IS NOT MADE AVAILABLE BEFORE US AND AS PER THE JUDGEMENT OF HONBLE APEX COURT REPRODUCED ABOVE, THE MAIN OBJECT OF THE ASSESSEE COMPANY HAS TO BE EXAMINED FROM MEMORANDUM OF ASSOCIATION OF THE A SSESSEE COMPANY AND THEREFORE, WE FEEL IT PROPER THAT THIS MATTER MAY B E RESTORED BACK TO THE FILE OF CIT(A) FOR FRESH DECISION AFTER EXAMINING THE FACTS OF THE PRESENT CASE PARTICULARLY THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPA NY AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THIS JUDGEMENT OF HONBLE AP EX COURT RENDERED IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT (S UPRA) WITH REGARD TO THIS ASPECT AS TO WHETHER THE INCOME IS ASSESSIBLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR AS INCOME FROM BUSINESS. 12. NEXT ISSUE TO BE DECIDED IS REGARDING SET OFF O F THE LOSSES BUT FOR DECIDING THIS ISSUE, THIS ASPECT HAS TO BE DECIDED FIRST AS TO WH ETHER THE INCOME IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY OR INCOME FR OM BUSINESS BECAUSE THIS ASPECT IS NOT BEING DECIDED BY US AND IS BEING REST ORED BACK TO THE FILE OF CIT(A) FOR FRESH DECISION AS PER PARA NO. 11 ABOVE, WE RES TORE BACK THIS ISSUE ALSO TO CIT(A) FOR FRESH DECISION AFTER EXAMINING THE FIRST ASPECT AS TO WHETHER THE INCOME IS ASSESSIBLE AS INCOME FROM HOUSE PROPERTY OR INCOME FROM BUSINESS. THE CIT(A) SHOULD DECIDE BOTH THESE ISSUES AFRESH A FTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 13. REGARDING THE ADHOC DISALLOWANCE OF 25% OF INTE REST EXPENDITURE CLAIMED BY THE ASSESSEE, WE FIND THAT ON PAGES 10 AND 11 OF THE AS SESSMENT ORDER, THIS DISALLOWANCE WAS MADE BY THE AO ON ADHOC BASIS WITH OUT GIVING ANY COGENT REASONING AND WITHOUT INDICATING ANY BASIS FOR COMI NG TO THE CONCLUSION THAT 25% OF THE INTEREST EXPENDITURE IS TO BE DISALLOWED. T HE CIT(A) HAS ALSO NOT GIVEN ANY REASONING FOR CONFIRMING THIS DISALLOWANCE. HE NCE, THIS ISSUE IS ALSO RESTORED ITA NO. 2097/BANG/2016 PAGE 12 OF 12 BACK TO THE FILE OF CIT(A) FOR FRESH DECISION BY WA Y OF A SPEAKING AND REASONED ORDER AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF FEBRUARY, 2018. SD/- SD/- (ARUN KUMAR GARODIA) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 14 TH FEBRUARY, 2018. / MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.