DCIT Corporate Circle 2(1), CHENNAI V. Egberts India Pvt Ltd., CHENNAI

ITA 2830/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5028 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 23-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Set aside

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO.2830/CHNY/2017 /ASSESSMENT YEAR: 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), WANAPARTHY BLOCK, 121, M.G. ROAD, CHENNAI 600 034. VS. M/S. EGBERTS INDIA PVT. LTD., NEWRY SHREYA, F-34, (OLD NO. 97), 4 TH STREET, ANNA NAGAR EAST, CHENNAI 600 102. [PAN:AAACE1410F] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SRIDHAR DORA, JCIT / RESPONDENT BY : NONE / DATE OF HEARING : 30.04.2019 /DATE OF PRONOUNCEMENT : 21.05.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 6, CHENNAI DATED 15.09.2017 RELEVANT TO THE ASSESSMENT YEAR 2010-11. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE DISALLOWANCE OF EXPENDITURE OF .1,56,39,647/- AND DIRECTING THE ASSESSING OFFICER TO TREAT THE SAME AS BUSINESS EXPENDITURE. 2. THE APPEAL FILED BY THE REVENUE IS DELAYED BY 2 DAYS, FOR WHICH, I.T.A. NO.2830/CHNY/17 2 THE REVENUE HAS FILED PETITION FOR CONDONATION OF THE DELAY. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. DR, WE FIND THAT THE REVENUE WAS PREVENTED BY SUFFICIENT CAUSE IN FILING THE APPEAL WITH DELAY OF 2 DAYS,. ACCORDINGLY, THE SHORT DELAY OF 2 DAYS IN FILING THE APPEAL IS CONDONED AND ADMITTED THE APPEAL FOR ADJUDICATION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 22.09.2010 ADMITTING AN INCOME OF .1,61,67,926/-. AFTER PROCESSING THE RETURN FILED BY THE ASSESSEE, CONSIDERING THE SUBMISSIONS AND DOCUMENTS SUBMITTED, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EARNED ONLY RENTAL INCOME AND INTEREST INCOME. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS ACTIVITY, THEREBY INCURRING ANY BUSINESS EXPENDITURE, THE ASSESSMENT WAS COMPLETED BY ASSESSING THE TAXABLE INCOME AT .3,19,45,260/- AFTER DISALLOWING THE BUSINESS EXPENDITURE OF .1,56,39,647/-, WHICH IS SUBJECT MATTER IN APPEAL. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONSIDERING THE REMAND REPORT OBTAINED ON THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE, THE LD. CIT(A) ALLOWED THE NET EXPENDITURE OF .1,56,39,647/- REPRESENTING THE BUSINESS EXPENDITURE RELATING TO OTHER BUSINESS I.T.A. NO.2830/CHNY/17 3 ACTIVITIES, DIRECTED THE ASSESSING OFFICER TO ALLOW LOSS AS CLAIMED BY THE ASSESSEE. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR HAS SUBMITTED THAT WITHOUT CONSIDERING THE NEXUS BETWEEN THE INCOME AND EXPENDITURE, THE LD. CIT(A) ERRONEOUSLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE BUSINESS LOSS AS CLAIMED BY THE ASSESSEE BY HOLDING THAT THE EXPENSES OF .1,56,39,647/- BE TREATED AS BUSINESS EXPENDITURE RELATING TO OTHER BUSINESS ACTIVITIES. IT WAS FURTHER SUBMISSION THAT IN THE REMAND REPORT, THE ASSESSING OFFICER HAS CLEARLY STATED THAT THE RENTAL INCOME HAD BEEN INCLUDED IN THE PROFIT AND LOSS ACCOUNT AND THE SAME WAS SEPARATED AND CLAIMED AS INCOME FROM HOUSE PROPERTY WITH STANDARD DEDUCTION OF 30% IN THE COMPUTATION MEMO ITSELF. THEREFORE, NO FURTHER EXPENSES COULD BE ALLOWABLE TO THE ASSESSEE IN THE ABSENCE OF NATURE OF EXPENSES, ETC. ALONG WITH PROOF TOWARDS THE CLAIM FURNISHED BY THE ASSESSEE AT ANY STAGE OF ITS APPEAL AND PLEADED FOR REVERSING THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 6. DESPITE NOTING THE NEXT DATE OF HEARING, WHICH WAS ADJOURNED AT THE REQUEST OF THE LD. COUNSEL, SINCE NONE APPEARED ON BEHALF OF THE ASSESSEE WHEN THE APPEAL WAS TAKEN UP FOR HEARING ON 17.01.2019, THE HEARING WAS ADJOURNED TO 30.04.2019 AND NOTICE HAS BEEN DULY ISSUED ON I.T.A. NO.2830/CHNY/17 4 THE ASSESSEE. HOWEVER, WHEN THE APPEAL WAS TAKEN UP FOR HEARING ON 30.04.2019, NONE APPEARED ON BEHALF OF THE ASSESSEE. HENCE, WE PROCEED TO DECIDE THE APPEAL ON MERITS AFTER HEARING THE LD. DR. 7. WE HAVE HEARD THE LD. DR, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE MAIN BUSINESS OF THE ASSESSEE COMPANY IS REAL ESTATE AND PROPERTY DEVELOPMENT. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS SHOWN ONLY THE INCOME FROM HOUSE PROPERTY AND INTEREST INCOME FROM BANK & EB DEPOSITS. NO INCOME FROM BUSINESS WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT. IN THE ABSENCE OF ANY BUSINESS ACTIVITY, THE ASSESSEE COMPANY HAS SIMPLY DEBITED HUGE EXPENSES AS EXPENDITURE PERTAINING TO BUSINESS (INCLUDING DEPRECIATION) AND SHOWN NET LOSS. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS SUBMITTED THAT T HE ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND MAINTENANCE OF PROPERTY. THE APPELLANT IS NOT MERELY DOING THE JOB OF COLLECTING RENT FROM THE TENANTS OF ITS PROPERTIES. UNLIKE A LANDLORD IN THE NORMAL SENSE, THE APPELLANT, HAVING LET OUT THE PROPERTIES TO LARGE COMMERCIAL CONCERNS LIKE TCS, IS OBLIGATED TO MAINTAIN THE PROPERTIES IN ALL ROUTINE ASPECTS, VIZ., RUNNING AND MAINTENANCE OF AIR CONDITIONERS, EQUIPMENTS, ELECTRICAL FITTINGS, UPKEEP, HOUSEKEEPING ETC., RESULTING IN THE APPELLANT INCURRING EXPENDITURE ON ADMINISTRATION AND I.T.A. NO.2830/CHNY/17 5 KEEPING THE RENTED PROPERTIES FIT AND USABLE. FURTHER THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE APPELLANT BEING A COMPANY HAD TO INCUR VARIOUS STATUTORY EXPENDITURE. THE ASSESSING OFFICER ALSO FAILED TO APPRECIATE THAT THE APPELLANT ALSO HAD OTHER PROPERTIES VIZ., THE PROPERTY AT MAHABALIPURAM, WHICH, ALTHOUGH NOT COMMERCIALLY EXPLOITED SO AS TO FETCH RENT, REQUIRED TO BE MAINTAINED AND MAKING IT COMMERCIALLY EXPLOITABLE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: THE APPELLANT COMPANY HAS TWO PROPERTIES, ONE AT MAHABALIPURAM AND ONE AT ANNANAGAR, CHENNAI. THE PROPERTY AT ANNANAGAR, CHENNAI IS LET OUT TO M/S. TATA CONSULTANCY SERVICES LTD. THE PROPERTY AT MAHABALIPURAM IS THE ONE FOR WHICH THE APPELLANT COMPANY HAS APPLIED FOR APPROVALS FROM MUNICIPAL AND CORPORATION AUTHORITIES FOR DEVELOPMENT. IT IS SUBMITTED THAT THE NECESSARY APPROVALS HAVE SINCE BEEN OBTAINED DURING THE CURRENT FINANCIAL YEAR 2017-18 AND THE PROJECT CONSTRUCTION I DEVELOPMENT HAS COMMENCED. IN RESPECT OF THE PROPERTY AT ANNANAGAR, CHENNAI, THE TENANT M/S. TATA CONSULTANCY SERVICES LTD, PAYS RENT. HOWEVER, UNLIKE IN A NORMAL TENANCY, THE LANDLORD (THE APPELLANT) HAS THE OBLIGATION TO MAINTAIN THE PROPERTY IN WHEN IT COMES TO ELECTRICAL, PLUMBING NEEDS ETC. THE PROPERTY BEING BIG IN SIZE, THIS ENTAILS EMPLOYMENT OF REQUIRED STAFF FOR CATERING TO THE VARIOUS NEEDS IN THE RENTED PROPERTY AND MAINTENANCE THEREOF. STAFF AND OTHER ADMINISTRATIVE COSTS ARE INCURRED AND CLAIMED AS BUSINESS EXPENDITURE AS EXPLAINED EARLIER. FURTHER, THE OTHER MAJOR EXPENDITURE IS INTEREST COST ON UNSECURED LOANS. THE APPELLANT COMPANY HAD TAKEN UNSECURED LOANS FROM M/S. ING VYSYA BONK AT VARIOUS STAGES OF THE ACQUISITION/CONSTRUCTION OF THE SAID PROPERTY AT ANNANAGAR AS WELL AS FOR IMPROVING THE INFRASTRUCTURE OF THE SOLD PROPERTY SUBSEQUENTLY OVER THE YEARS. ALL THESE ARE ESSENTIAL FOR THE APPELLANT TO KEEP THE PROPERTY COMMERCIALLY EXPLOITABLE SO AS TO EARN RENT FROM THE SAID PROPERTY. THE AUTHORISED REPRESENTATIVE ARGUES THAT, THE BUSINESS LOSS CLAIMED OF RS.1.56 CRORES REPRESENTS GENUINE, BONAFIDE EXPENDITURE, INCURRED FOR THE PURPOSE OF THE BUSINESS. WHILE MAJOR PORTION OF THE ABOVE REPRESENTS EXPENDITURE BUT FOR WHICH THE APPELLANT COULD NOT HAVE THE PROPERTY AT ANNANAGAR IN A STATE I.T.A. NO.2830/CHNY/17 6 THAT IS COMMERCIALLY EXPLOITABLE, SOME OTHER EXPENDITURE IS STATUTORY EXPENDITURE, THE APPELLANT BEING A PRIVATE LIMITED COMPANY AND SOME OTHERS RELATE TO MAINTAINING THE MAHABALIPURAM PROPERTY. THE APPELLANT SUBMITS THAT ALTHOUGH THE APPELLANT HAS NOT EARNED INCOME FROM BUSINESS OF DEVELOPMENT OF THE PROPERTY AT MAHABALIPURAM ALL THESE YEARS. IT IS SUBMITTED THAT THE APPELLANT HAS SINCE GOT CONCERNED APPROVALS FROM THE CIVIC AUTHORITIES AND THE DEVELOPMENT OF THE PROPERTY HAS COMMENCED IN THE FINANCIAL YEAR 2017-18 AND THE APPELLANT EXPECTS TO GENERATE INCOME FROM THE DEVELOPMENT PROJECT THEREON SHORTLY. MERELY BECAUSE THERE IS NO INCOME IN ANY FINANCIAL YEAR, IT CANNOT BE SAID THAT THE APPELLANT DID NOT HAVE ANY BUSINESS, MORE SO IN THE PROPERTY DEVELOPMENT BUSINESS, WHEREIN DEVELOPMENT IS POSSIBLE ONLY AFTER OBTAINING VARIOUS APPROVALS FROM CIVIC AUTHORITIES AS IN THIS CASE. IT IS SUBMITTED THAT CERTAIN ESSENTIAL EXPENDITURE HAS TO BE NECESSARILY INCURRED WHETHER THERE IS INCOME OR OTHERWISE. THE APPELLANT ENCLOSE THE COMPUTATION OF INCOME FOR TAX PURPOSES AS FILED ALONG WITH THE BREAKUP OF NET EXPENDITURE. IT MAY BE SEEN FROM THE COMPUTATION OF INCOME, THAT THE APPELLANT THEMSELVES HAVE DISALLOWED ALL THE EXPENSES INCURRED & DIRECTLY RELATABLE TO THE PROPERTY WHICH EARNED RENTAL INCOME AND CLAIMED ONLY THE DEDUCTION U/S 24(A) @ 30%. THE REST OF THE OTHER NET EXPENDITURE AMOUNTING TO RS.1.56,39,647/- REPRESENTS THE BUSINESS EXPENDITURE RELATING TO THE OTHER BUSINESS ACTIVITIES. IN VIEW OF THE ABOVE, THE ARGUMENTS OF THE AUTHORISED REPRESENTATIVE ARE ACCEPTED AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM ON LOSS MADE BY THE APPELLANT. 8. IN THE FINANCIAL YEAR 2009-10 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, ADMITTEDLY, THE ASSESSEE IS ENGAGED IN REAL ESTATE BUSINESS AND PROPERTY DEVELOPMENT AND MAINTENANCE. THE ASSESSEE HAS ADMITTED RENTAL INCOME FROM HOUSE PROPERTY AND CLAIMED WITH STANDARD DEDUCTION OF 30%. THIS 30% DEDUCTION IS ALLOWED TO THE ASSESSEE TO MEET OUT THE EXPENDITURE RELATING TO ELECTRICAL/PLUMBING, HOUSEKEEPING, ETC. AND OTHER STATUTORY EXPENDITURE WHATSOEVER THE NATURE IT MAY BE AS WELL AS WHETHER THE EXPENDITURE IS HIGHER OR LOWER. OVER AND ABOVE, THE I.T.A. NO.2830/CHNY/17 7 ASSESSEE IS NOT ENTITLED TO CLAIM ANYMORE OR ANY OTHER EXPENDITURE UNDER THIS PARTICULAR HEAD. IN CASE, IF THE ASSESSEE EARNED ANY OTHER INCOME FROM ANY OTHER BUSINESS, THE EXPENDITURE INCURRED FOR SUCH BUSINESS INCOME CAN BE ALLOWED. IN THIS CASE, THE ASSESSEE HAS NOT ADMITTED ANY OTHER INCOME IN ITS COMPUTATION. SINCE, NO OTHER EXPENDITURE, OVER AND ABOVE 30% DEDUCTION ALLOWED AGAINST RENTAL INCOME FROM THE HOUSE PROPERTY, IS ALLOWABLE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ASSESSMENT. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON THE 21 ST MAY, 2019 AT CHENNAI. SD/- SD/- ( INTURI RAMA RAO) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 21.05.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.