DCIT 22(2), NAVI MUMBAI V. SKY STAR, MUMBAI

ITA 2237/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3757 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F, BENCH MUM BAI BEFORE SHRI RAJENDRA, AM AND SHRI SANDEEP GOSAIN, J M ITA NO.2012/MUM/2012 (ASSESSMENT YEAR: 2008-09) M/S. SKY STAR, SKYLINE OASIS, PREMIER ROAD, NR. VIDYABIHAR STATION, GHATKOPAR (W), MUMBAI 400086 VS. THE DY. COMMISSIONER OF INCOME TAX, RANGE 22 (2), MUMBAI PAN: AB C F S 0 6 18M APPELLANT .. RESPONDENT ITA NO.2237/MUM/2012 (ASSESSMENT YEAR: 2008-09) THE DY. COMMISSIONER OF INCOME TAX, RANGE 22 (2), MUMBAI VS. M/S. SKY STAR, SKYLINE OASIS, PREMIER ROAD, NR. VIDYABIHAR STATION, GHATKOPAR (W), MUMBAI 400086 PAN: AB C F S 0618M APPELLANT .. RESPONDENT ASSESSEE BY SHRI NARESH JAIN, AR REVENUE BY NONE DATE OF HEARING 22 - 04 - 2016 DATE OF PRONOUNCEMENT 11 - 0 5 - 2016 O R D E R PER SANDEEP GOSAIN,J.M : BOTH THE PRESENT TWO CROSS APPEALS, ONE ITA NO.2012 /MUM/2012 FILED BY THE ASSESSEE AND THE OTHER ITA NO.2237/MUM /2012 FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LEARN ED CIT (A)-33, MUMBAI DATED 13-01-2012 PASSED IN APPEAL NO.CIT (A)-33/IT/ 223/10-11 FOR ASSESSMENT YEAR 2008-09 ON THE FOLLOWING RESPECTIVE GROUNDS:- ASSESSEES APPEAL IN ITA NO.2012/MUM/2012 (AY- 2008 -09) ITA NO.2012 & 2237/MUM/2012 2 1. ON HE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN A FFIRMING THE DECISION OF ASSESSING OFFICER FOR ASSESSING INTER EST INCOME OF RS.21,27,373/- SEPARATELY UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF NETTING WITH INTEREST PAYABLE AMOUNTING TO RS.2,43,90,694/- AS DONE BY YOUR APPELLANT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN STATING T HAT ANY GAIN ON FUTURE SALE OF PROPERTY WOULD BE OFFERED UNDER BU SINESS INCOME INSTEAD OF CAPITAL GAINS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN STATING T HAT THE FUTURE RENTAL INCOME WHICH WILL BE RECEIVED FROM THE LEA SED OUT PREMISES SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OT HER SOURCES INSTEAD OF INCOME FROM HOUSE PROPERTY. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN GIVING AN OBSERVATION FOR TREATMENT OF INCOME FOR FUTURE YEARS THOUGH THEY WERE NOT SUBJECT MATTER OF CURRENT YEAR OF APPEAL. 5. THE APPELLANT PRAYS CRAVES LEAVE TO ADD TO, ALTE R, TO DELETE FROM OR SUBSTANTIATE THE ABOVE GROUND OF APPEAL. REVENUES APPEAL IN ITA NO.6580/MUM/2007 (AY-2003- 04) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, HE LD. CIT (A) HAS ERRED IN ALLOWING RELIEF TO THE ASS ESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,42,2 9,886/- MADE BY THE ASSESSING OFFICER APPLYING PERCENTAGE COMPLETI ON METHOD (REVISED AS-7) BY TAKING NET PROFIT PERCENTAGE AFT ER DEPRECIATION @8% OF THE WORK IN PROGRESS. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD. CIT (A) ERRED IN ACCEPTING THE CONTENTION OF THE A SSESSEE THAT SINCE HE IS A REAL ESTATE DEVELOPER THE REVISED A S-7 PRESCRIBING PERCENTAGE COMPLETION METHOD IS NOT APPLICABLE AND THE AS-9 WHICH PROVIDES FOR PROJECT COMPLETION METHOD IS AP PLICABLE. 3. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD. CIT (A) ERRED IN ACCEPTING THE CONTENTION OF THE ASSES SEE DISREGARDING THE FACTS THAT THE REVENUE IS IN APPEAL BEFORE THE HONBLE ITAT ON THE SAME GROUND FOR A. Y. 2007-08 AND THE FINAL OU TCOME ON THIS ISSUE IS AWAITED. ITA NO.2012 & 2237/MUM/2012 3 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT ( A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPERS & BUILDERS F ILED ITS RETURN OF INCOME DECLARING NIL INCOME ON 26-09-2008. THE CASE WAS FOR SCRUTINY AND AFTER ISSUING/SERVING NOTICES AND RECEIVING THE REPLY THE AO MADE ADDITION ON ACCOUNT OF INTEREST ON FDRS, PROFIT FRO M CONSTRUCTION BUSINESS AND INCOME FROM OTHER SOURCES AND DETERMINED THE TO TAL INCOME OF THE ASSESSEE AT RS.1,63,57,259/- VIDE ASSESSMENT ORDER PASSED U/S 143 (3) OF THE IT ACT DATED 20-12-2010. AGGRIEVED BY THE OR DER OF THE AO THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT (A ) AND THE LEARNED CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), BOTH THE ASSESSEE AS WELL A S THE REVENUE ARE NOW IN APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. 3. FIRSTLY, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.2012/MUM/2012 [AY 2008-09]. 4. GROUND NO. 1 OF THE ASSESSEES APPEAL RELATES TO ASSESSING THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER S OURCE INSTEAD OF NETTING AGAINST INTEREST PAYMENT. THE LEARNED AR AT THE TIME OF HEARING BEFORE US SUBMITTED THAT THE INTEREST INCOME EARNED ON FDRS WAS CAPITALIZED. IT WAS FURTHER ARGUED BY THE LEARNED A R THAT THOUGH THE LEARNED CIT (A) ACCEPTED THAT THE APPELLANT/ASSESS EE EITHER CAN ITA NO.2012 & 2237/MUM/2012 4 CAPITALIZE THESE ITEMS IN THE INVESTMENT OR . BUT UPHELD THE DECISION OF THE AO ON THE WRONG ASSUMPTION THAT THE ASSESSEE HA D CLAIMED NET INTEREST EXPENSES IN THE PROFIT & LOSS ACCOUNT. THE LEARNED AR FURTHER RELIED UPON THE DECISION IN THE CASE OF BOKARO STEE L LTD., 236 ITR 315(SC) WHEREIN IT WAS HELD THAT THE RECEIPTS WHICH ARE INTRINSICALLY CONNECTED WITH THE CONSTRUCTION ACTIVITY WOULD BE R EDUCED FROM THE COST OF CONSTRUCTION. DURING THE COURSE OF ARGUMENT IT WAS ALSO SUBMITTED BY THE LEARNED AR THAT THE SAID ISSUE IS COVERED AGAINST THE ASSESSEE AS ALREADY DECIDED BY THE ITAT MUMBAI BENC H IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.2124 & 2422/M/201 ORDER DATED 31-07-2012. THE LEARNED DR F AIRLY CONCEDED TO THE SUBMISSION OF THE LEARNED AR IN THIS REGARD. TH E RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED HEREIN BELOW FOR READY REFERENCE:- 3. SO FAR AS IT RELATES TO ASSESSEES APPEAL WE FI ND THAT LD. CIT (A) HAS RIGHTLY DECIDED THAT SINCE THE ASSESSEE HAS CAPITALIZED ALL THE COST OF THE PROJECT, THE INTEREST EARNED BY IT FROM FDR CANNOT BE SET OFF AGAINST INTEREST PAID. WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT (A) WHILE SUCH ADDITION HAS BEEN UPHELD. THEREF ORE, THE APPEAL OF THE ASSESSEE IS ALSO DISMISSED. 5. WE RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH, IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY, U PHOLD THE ORDER OF THE LEARNED CIT (A) AND DISMISS THE GROUND OF APPEAL OF THE ASSESSEE ON THIS ISSUE. 6. GROUNDS NO.2, 3 AND 4 ARE INTERRELATED AND INTERCONNECTED. THEREFORE, WE DEEM IT PROPER TO ADJUDICATE THESE GR OUNDS TOGETHER. THESE GROUNDS OF APPEAL OF THE ASSESSEE RELATE TO THE ISS UE OF RENTAL INCOME WHICH WAS ASSESSED AS INCOME FROM OTHER SOURCES A ND AS NOT INCOME ITA NO.2012 & 2237/MUM/2012 5 FROM HOUSE PROPERTY AND ALSO ANY SALE IN FUTURE TO BE ASSESSES AS BUSINESS INCOME. AT THE TIME OF HEARING BEFORE US , THE LEARNED AR SUBMITTED THAT THE LEARNED CIT (A) HAS ERRED IN STA TING THAT ANY GAIN ON FUTURE SALE OF PROPERTY WOULD BE TREATED AS CAPITAL GAIN AND THAT THE LEARNED CIT (A) HAS ALSO ERRED IN STATING THAT THE FUTURE RENTAL INCOME WHICH WOULD BE RECEIVED FROM THE LEASED OUT PREMISE S SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE LEARNED AR FURTHER ARGUED THAT THE LEARNED CIT (A) WHILE PASSI NG THE IMPUGNED ORDER HAS RELIED UPON THE CASE OF THE MAHARASTRA STATE CO -OPERATIVE BANK VS CIT REPORTED IN 2 ITR 543 (SB). HOWEVER, AS PER CON TENTIONS OF THE LEARNED AR THE FACTS OF THE AFOREMENTIONED CASE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, AS THE ISSUE BEFORE THE SPECIAL BENCH OF THE TRIBUNAL WAS ALLOWABILITY OF DEDUCTION OF INTEREST ON INCOME TAX REFUND. IT WAS FURTHER ARGUED BY THE LEARNED AR THAT THE LEARN ED CIT (A) HAS ALLOWED IN THE SUBSEQUENT ASSESSMENT YEARS THE INCO ME FROM HOUSE PROPERTY AS CAPITAL ASSET FROM ASSESSMENT YEAR 2009 -10 ONWARDS. IT WAS FURTHER SUBMITTED THAT THE PROPERTY HAS BEEN LET OU T TO M/S. VODAFONE ESSAR LTD. FOR ASSESSMENT YEAR 2009-10. THE LEARNED DR ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE REVENUE AUTHORI TIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BEL OW. WE FIND THAT IT IS AN UNDISPUTED FACT THAT IN THE SUBSEQUENT ASSESSMENT Y EAR THE LEARNED CIT (A) HAS ACCEPTED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AND THE PROPERTY AS CAPITAL ASSET FOR ASSESSMENT YEAR 2 009-10. AS PER THE ITA NO.2012 & 2237/MUM/2012 6 LEASE DEED DATED 16-12-2008 COPY OF WHICH IS ON REC ORD ENTERED INTO BY AND BETWEEN M/S. SKY STAR AND M/S. VODAFONE ESSAR L TD. WHICH CAME INTO FORCE WITH EFFECT FROM 1 ST DECEMBER, 2008 FOR FIVE YEARS SHOWS THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT OF I MMOVABLE PROPERTIES BY CONSTRUCTING BUILDINGS OR COMPLEXES FOR COMMERCI AL AND RESIDENTIAL PURPOSES. IT WAS ALSO THE OBJECT OF THE PARTNERSHIP FIRM TO SELL, LET OUT OR OTHERWISE DISPOSING OFF THE PREMISES THEREIN OR OTH ER BUSINESS OR TRANSFER OF THE SAID PROPERTY WITH BUILDING/BUILDINGS THEREO F. IN VIEW OF THIS FACT, WE ARE OF THE CONSIDERED VIEW THAT SINCE BUILDING WHIC H IS CAPITAL ASSET OF THE ASSESSEE, AND IF THE SAME IS GIVEN ON LONG TERM LEA SE, IT WOULD YIELD RENTAL INCOME FROM HOUSE PROPERTY IN VIEW OF THE DE CISION RENDERED IN THE CASE OF M/S. EAST INDIA HOUSING AND LAND DEVELOPMEN T TRUST LTD. VS CIT [42 ITR 49 (SC) WHEREIN IT HAS BEEN CONCLUDED THAT THE INCOME RECEIVED FROM TENANTS, FROM SHOPS AND STALLS BY THE ASSESSEE IS INCOME FROM PROPERTY AS IT FALLS UNDER SPECIFIC HEAD DESCRIBED U/S 9 OF THE ACT AND THAT THERE IS NO ALTERATION IN CHARACTER OF INCOME BECAUSE OF ASSESSEES OBJECT AND, THEREFORE, SAME IS LIABLE TO TAX AS INCOME FROM PROPERTY AND NOT AS INCOME FROM BUSINESS. THEREFORE, WHILE CONCURRING WITH THE SAME VIEW THE LEARNED CIT (A) H IMSELF HAS ACCEPTED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY A ND THE PROPERTY AS CAPITAL ASSET. IN VIEW OF THE ABOVE, WE SET ASIDE T HE ORDER OF THE LEARNED CIT (A) BY REVERSING HIS FINDINGS ON THIS ISSUE AND ALLOW THESE GROUNDS OF APPEAL OF THE ASSESSEE. ITA NO.2012 & 2237/MUM/2012 7 8. GROUND NO.5 OF THE ASESSEES APPEAL IS GENERAL I N NATURE AND HENCE REQUIRES NO SPECIFIC ADJUDICATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 10. NOW, WE WILL ADJUDICATE REVENUES APPEAL ITA NO.2237/MUM/2012. GROUNDS NO.1, 2 AND 3 OF THE APPEAL ARE INTERRELATE D AND INTERCONNECTED AND HENCE, THEY ARE ADJUDICATED TOGETHER. AT THE VE RY OUTSET IT WAS SUBMITTED BY THE LEARNED AR THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08. IT WAS FURTHER SUBMITTED THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2009-10 AND 2010-11 ALSO THE LEARNED CIT (A) H AS ALLOWED THESE GROUNDS IN FAVOUR OF THE ASSESSEE. THE SAID FACTUAL AND LEGAL POSITION HAS NOT BEEN DISPUTED BY THE LEARNED DR REPRESENTING TH E REVENUE. 11. IN ORDER TO DECIDE THE CONTROVERSY, WE FIRST OF ALL REFER TO THE OPERATIVE PARAGRAPH OF THE DECISION OF THE TRIBUNAL IN ASSESSEES ON CASE FOR AY 2007-08 IN ITA NO.2124/MUM/2011 ALONG WITH R EVENUES APPEAL IN ITA NO.2422/MUM/2011 ORDER DATED 31-07-2012 WHICH R EADS AS UNDER:- 2.10 THE FACT THAT PROJECT IS COMPLETED ONLY UP TO 16% HAS ALSO NOT BEEN CONTROVERTED BY THE REVENUE. ACCORDING TO AFOR EMENTIONED DECISION OF TRIBUNAL IN THE CASE OF AWADHESH BUILDE R (SUPRA), THE ASSESSEE HAS OPTION TO ADOPT WORK COMPLETION METHOD . IF THE SAME IS TAKEN INTO CONSIDERATION, AS PROJECT HAS NOT BEE N COMPLETED DURING THE YEAR AND ONLY 16% OF THE PROJECT IS COMP LETED, THE INCOME COULD NOT BE ASSESSED EVEN WITH REFERENCE TO AS-7. MOREOVER, THE OTHER UNDISPUTED FACT IS ALSO NOT CON TROVERTED THAT ASSESSEE DID NOT SELL ANY PORTION OF THE IMPUGNED P ROJECT AND HAS STARTED EARNING LEASE RENTAL FROM THE SAID PROJECT ON LONG TERM BASIS. THEREFORE, KEEPING IN VIEW ALL THESE FACTS, WE ARE OF THE OPINION THAT LD. CIT (A) HAS RIGHTLY DELETED THE AD DITION. WE DECLINE ITA NO.2012 & 2237/MUM/2012 8 TO INTERFERE AND ALL GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE DISMISSED. 12. IN VIEW OF THE ABOVE, WE FIND THAT THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE IS WELL REASONED AND JUDICIOUS AND TH ERE IS NO INFIRMITY IN THE SAME. ACCORDINGLY, RESPECTFULLY FOLLOWING THE DECIS ION OF OUR CO-ORDINATE BENCH AS AFORESAID, WE UPHOLD THE ORDER OF THE LEAR NED CIT (A) AND DISMISS THE GROUNDS OF THE REVENUES APPEAL ON THIS ISSUE. 13. GROUND NOS. 4 AND 5 OF THE REVENUES APPEAL AR E OF GENERAL NATURE AND THEREFORE, REQUIRES NO SPECIFIC ADJUDICA TION IN THIS REGARD. 14. IN THE OVERALL RESULT, THE APPEAL OF THE ASSESS EE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/5/2016. SD/- SD/- ( JASON P. BOA Z ) ( SANDEEP GOSAI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 11.05.2016 LAKSHMIKANTA DEKA/SR.PS LAKSHMIKANTA DEKA/SR.PS LAKSHMIKANTA DEKA/SR.PS LAKSHMIKANTA DEKA/SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//