M/s. Oceanic Buildcon Pvt.Ltd., Baroda V. The ACIT, Circle-4, Baroda

ITA 3034/AHD/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4783 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 17-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Source of fund; Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 3034/AHD/2014 & ITA 1865, 1866 & 3487/AHD/2016 (ASSESSMENT YEARS: 2010-11 TO 2013-14) M/S. OCEANIC BUILDCON PVT. LTD. GF-1, CINE MALL, NR. NATUBHAI CIRCLE, RACE COURSE ROAD, BARODA- 390007 V/S THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA (APPELLANT) (RESPONDENT) PAN: AAACO8023E APPELLANT BY : SHRI MUKUND BAKSHI, AR RESPONDENT BY : SHRI S. K. DEV, SR. D.R. ( )/ ORDER DATE OF HEARING : 18 -07-201 8 DATE OF PRONOUNCEMENT : 15-10-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THESE FOUR APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A). SINCE GROUNDS ARE COMMON FOR THE ASSESSMENT YEARS AND AMOUNTS ARE ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 2 DIFFERENT, THEREFORE, FOR THE SAKE OF CONVENIENCE, WE WOULD LIKE TO DISPOSE OF ALL THE FOUR APPEALS TOGETHER. 2. IN ITA NO. 3034/AHD/2014 FOR A.Y. 2010-11 ASSESSEE S APPEAL. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1 THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS)-III BARODA ERRED IN FACT AND IN LAW IN HOLDING THAT THE INCOME OF THE ASSESS EE IS TAXABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' INSTEAD OF BUSINESS INCO ME. 2 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN DISALLOWING THE BUSINESS LOSS OF RS. 2,46,06,893/- AND TREATING THE SAME AS PRE- OPERATIVE EXPENSES. 3 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN CONSIDERING RENTAL INCOME OF RS. 1,35,000/- AS INCO ME FROM OTHER SOURCES AND THEREBY TAXING THE SAID INCOME. 4 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING SET OFF OF BUSINESS LOSS AGAINST OTHER INCOME. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN INITIATING PENALTY PROCEEDINGS U/S. 27L(L)(A). 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING IMMOVABLE PROPERTY ON HIRE/RENT BASIS. DURING THE YEAR, THE ASSESSEE WAS DOING CONSTRUCTION OF BUILDING TO GIVE ON RENT. THE ASSESSEE PURCHASED A LAND IN THE FINANCIAL YEAR 2005-06 AND COMMENCED THE CONSTRUCTION OF BUILDING A MALL IN THE FINANCIAL YE AR 2007-08. THE MALL IS COMPLETED IN THE FINANCIAL YEAR 2009-10. THE COMPAN Y STARTED MARKETING ITS PROPERTY TO PROSPECTIVE CUSTOMERS. 4. THE ASSESSEE ENTERED INTO A MOU ON 19.02.2007 WITH CINEMAX OUTLINING THE BROAD TERMS OF LEASE OF THE PROPERTY. WHILE THE CON STRUCTION WAS UNDERWAY, THE COMPANY ALSO DERIVED INCOME FROM RENTING OF HOARDIN GS. IN THE ACCOUNTS ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 3 PREPARED FOR THE FINANCIAL YEAR 2008-09, IT WAS CON SIDERED BY THE COMPANY THAT BUSINESS IS ALREADY COMMENCED AND ACCORDINGLY THE P&L ACCOUNT IS PREPARED. 5. IN THE ASSESSMENT MADE FOR A.Y. 2009-10 THE A.O. DE NIED THE CLAIM OF LOSS AND THE LD. CIT(A) IN FIRST APPEAL HELD THAT THE COMPAN Y'S ACTIVITY IS OF RENTING OF PREMISES AND THEREFORE, THE INCOME EARNED BY IT IS TO BE FAXED AS INCOME FROM HOUSE PROPERTY. THE ACTION OF THE A.O. WAS THUS UPH ELD. BEING AGGRIEVED, THE ASSESSEE HAD PREFERRED A FURTHER APPEAL TO THE TRIB UNAL. THE TRIBUNAL IN ITS ORDER DATED 29.02.2016 IN ITA NO. 1060/AHD/2013 EXP UNGED THE FINDINGS OF THE LD.-CIT(A) WITH RESPECT TO THE TAXATION OF INCO ME FROM RENT AS INCOME FROM HOUSE PROPERTY. THE FINDING OF THE TRIBUNAL IS AS UNDER: '4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND OURSELVES IN AGREEMENT WITH THE LEA RNED COUNSEL THAT THE CIT(A) HAS INDEED MADE CERTAIN OBSERVATIONS WHICH PRE-EMPT THE CASE OF THE ASSESSEE FOR THE SUBSEQUENT ASSESSMENT YEARS AS WELL WE, THE REFORE, MAKE IT CLEAR THAT THE OBSERVATIONS MADE BY THE CIT(A), SO FAR AS PERIOD O UTSIDE THE ASSESSMENT YEAR 2009-10 IS CONCERNED, ARE DEVOID OF ANY BASIS AND S TAND VACATED. A FRESH CALL ON MERITS WILL HAVE TO BE TAKEN FOR THE ASSESSMENT YEA RS, UNINFLUENCED BY THE STAND TAKEN BY THE C1T(A) IN THE ASSESSMENT YEAR 2009-10, AND THE OBSERVATIONS IN THIS ORDER, TO THAT EXTENT, STAND EXPUNGED. LEARNED COUN SEL, IN THIS BACKGROUND, DOES NOT PRESS THE GROUND OF APPEAL ON MERITS AND HE IS CONTENT WITH THE UNWARRANTED OBSERVATIONS OF THE CIT(A) BEING HELD TO BE DEVOID OF LEGAL FORCE,' 6. IN THE A.Y. 2010-11, THE ASSESSEE HAS CLAIMED A BUS INESS LOSS OF RS. 2,46,03,893/- WHICH IS DENIED BY THE A.O. HOLDING T HAT THE PROJECT OF THE ASSESSEE IS STILL UNDER CONSTRUCTION DURING THE YEA R AND. THEREFORE, THE LOSS COULD NOT BE ALLOWED. IN FIRST APPEAL, THE LD. CIT(A), FO LLOWING HIS ORDER FOR A.Y. 2009-10, HELD THAT SINCE THE ACTIVITY OF THE ASSESS EE IS THAT OF EARNING INCOME ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 4 FROM HOUSE PROPERTY AND THAT THE COMPANY SHALL NOT CARRY OUT ANY BUSINESS, THE CLAIM OF LOSS ALLOWED WAS UPHELD. 7. IN THE A.Y. 2011-12, THE APPELLANT CLAIMED A BUSINE SS LOSS OF RS. 1,18,49,623/- WHICH IS ASSESSED AT A LOSS OF RS. 1,11,50,526/-. T HE A.O. ACCEPTED THE CONDUCT OF THE BUSINESS OF LEASE OF PREMISES AS CLAIMED BY THE ASSESSEE. IN FIRST APPEAL, THE LD. CIT(A), AFTER ISSUING NOTICE FOR ENHANCEMEN T AND AFFORDING THE OPPORTUNITY, HELD THAT THE INCOME OF THE ASSESSEE I S FROM HOUSE PROPERTY AND THE CLAIM OF BUSINESS LOSS WAS DENIED. 8. IN THE A.YS. 2012-13 AND 2013-14 ,THE A.O, HAS ASSE SSED THE INCOME AS INCOME FROM HOUSE PROPERTY WHICH IS UPHELD BY THE LD, CIT( A). 9. IN THE PROCEEDINGS BEFORE THE TRIBUNAL THAT ASSESSE E SUBMITTED THAT THE MAIN OBJECT OF THE COMPANY SINCE INCORPORATION IS TO CAR RY ON THE BUSINESS OF LEASING OF PREMISES. IN PURSUING THIS OBJECTIVE, TH E ASSESSEE PURCHASED THE LAND AND STARTED CONSTRUCTING THE MALL PREMISES. THE PRE MISES IN THE MALL ARE RENTED OUT TO VARIOUS PARTIES AND T1OE TERMS OF AGREEMENT OF LEASE VARIES FROM PARTY TO PARTY. REFERRING TO THE COPIES OF AGREEMENTS PLACED IN. THE PAPER BOOK, IT WAS POINTED OUT THAT THE TERMS OF AGREEMENT WITH EACH O F THE OCCUPIERS ARE DIFFERENT. THE BROAD TERMS OF AGREEMENTS WITH SOME OF THE PARTIES' WERE BEING AS UNDER: A) RELIANCE TRENDS I) THE AREA LEASED IS 18,094 SQ.FT. [PAGE N O. 102] FROM 18.03.2010 FOR A PERIOD OF 60 MONTHS [PAGE NO. 79 & 80] ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 5 II) THE LICENSE FEES IS NOT TO BE PAID FOR T HE FIRST 34 DAYS FROM THE DATE OF COMMENCEMENT OF BUSINESS OR FIRST 154 DAYS FROM THE DATE OF POSSESSION, WHICHEVER IS EARLIER [PAGE NO. 79] III) LOCK-IN PERIOD 12 MONTHS. [PAGE NO. 80] IV) THE LICENSE FEE IS THE HIGHER OF- [PAGE NO . 80] MINIMUM GUARANTEE FEES @ RS. 45 PER SQ. FT. CARPET AREA AND - 10% OF NET SALES V) THE COMPANY WOULD PROVIDE COMMON FACILITIES SUCH AS - [[PAGE NO. 94 - 95] (A) CENTRAL AIR CONDITIONING ON CONTINUOUS BASIS D URING THE BUSINESS HOURS AS AGREED IN COMMON AREAS OF THE MALL (B) MAINTAIN COMMON PASSAGES, LOBBIES AND ENTRANCE OF THE SAID MALL, INTER ALIA, WITH PROPER ILLUMINATION. (C) MAINTAIN ELEVATION, GLASS FACEDE OF THE MALL, M AINTAIN STRUCTURE, TERRACE AREA, STAIRCASES, ELEVATORS, LIFTS, SERVICE LIFTS, ALL THE EQUIPMENT FORMING PART OF THE INFRASTRUCTURE AND ESSENTIAL FOR THE FU NCTIONING OF THE SAID MALL, INCLUDING SERVICES, FIREFIGHTING SYSTEM, LIGHTING A ND ILLUMINATION, LANDSCAPING ETC. (D) ENSURE PROPER MAINTENANCE OF BUILDING, BUILDING STRUCTURE, WATER LEAKAGES, SEWAGE AND DRAINAGE LINES FUNCTIONING AND SERVICING. AVAILABILITY OF UNINTERRUPTED SERVICES SUCH AS ELECTRICITY, WATER C ONNECTION AND OTHER REQUIRED SERVICES FOR THE MALL. (E) GENERAL SECURITY SERVICES FOR THE SAID MALL, PA RKING LOT AND OTHER SURROUNDING PORTION OF THE PLOT FORMING PART OF THE SAID DEVELOPMENT. HOWEVER, LICENSEE IS FREE AND ENTITLED TO APPOINT S ECURITY FOR THE UNIT OF REQUIRED BY THE LICENSEE. ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 6 (F) MANAGE & MONITORING OF HOUSEKEEPING OF THE COMM ON AREAS AND FACILITIES INCLUDING THE PARKING AREA OF THE SAID M ALL. VI) THE COMMON AREA MAINTENANCE IS TO BE COLLE CTED @ RS. 7 PER SQ. FT. CARPET AREA OR ACTUALS, WHICHEVER IS LOWER. [PAGE N O. 83-84] VII) THE LICENSOR COULD SELL THE LICENSED PREM ISES TO ANY OTHER PERSON [PAGE NO. 88] VIII) THE LICENSOR TO INSURE THE PROPERTY. [PAG E NO. 88] IX) THE LICENSEE TO MAKE PAYMENTS FOR ELECTRI CITY, WATER ETC. [PAGE NO. 92] X) THE AGREEMENT DOES NOT CREATE ANY RIGHT O F TENANCY. [PAGE NO, 100] B) THE FORGE: I) THE CHARGES RECOVERABLE FOR LETTING OUT THE PREMISES ARE REFERRED AS LEASE RENTAL TO BE RECOVERED @ RS. 45 PER SQ. FT. F OR INITIAL 3 YEARS AND THEREAFTER INCREASE OF 20%. THE TOTAL LEASE PERIOD OF 9 YEARS. [PAGE NO. 110] II) THE COMMON AREA MAINTENANCE IS TO BE REC OVERED @ RS. 6 PER SQ. FT. OR THE ACTUALS, WHICHEVER IS HIGHER. [PAGE NO. ILL] III) LOCK-IN PERIOD OF 3 YEARS. [PAGE NO. ILL ] IV) THE LESSOR TO PROVIDE D.G. SET FOR POWER BACK UP. [PAGE NO. 113] V) THE TIMINGS OF THE MALL SHALL BE 11.00 A. M. TO 10.00 P.M. HOWEVER, THE LESSEE COULD USE THE PREMISES BETWEEN 5.30 A.M. TO 10.00 P.M. [PAGE NO. 116] C) CINEMAX INDIA LTD. I) THE LESSOR TO ENSURE OCCUPANCY OF 50% OF MALL PREMISES AT ALL TIMES. IF MALL PREMISES EXCEEDING 50% REMAIN VACANT FOR MO RE THAN 6 MONTHS ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 7 AFFECTING THE REVENUE OF LESSEE, THE LEASE RENT TO BE NEGOTIATED. [PAGE NO.143.] II) LOCK-IN PERIOD OF 9 YEARS. [PAGE NO. 146 ] III) SERVICES TO BE PROVIDED BY THE LESSOR: [ PAGE NO. 159-160] (A) REPAIRS AND MAINTENANCE OF THE MALL. (B) INSURANCE (C) OVERALL SECURITY SYSTEMS INCLUDING SECURITY PER SONNEL (D) CLEANING AND MAINTENANCE OF COMMON AREA (E) MAINTENANCE AND UPKEEP OF AIR CONDITIONING, FIR E FIGHTING EQUIPMENT, UTILITIES, D.G. SET / POWER SUPPLY (F) MAINTENANCE AND UPKEEP OF LANDSCAPING AND OTHER INFRASTRUCTURE. D) COSMO FLAVOURS I) THE CHARGES RECOVERABLE FOR LETTING OUT THE PREMISES IS REFERRED AS LEASE RENT. THE LEASE RENT TO BE RECOVERED @ 45 PER SQ. FT. FOR THE FIRST SIX MONTHS AND THEREAFTER @ 51 PER SQ. FT. [PAGE NO. 16 9] II) THE LEASE IS FOR A PERIOD OF 9 YEARS WIT H 15% INCREASE AFTER EVERY 3 YEARS. [PAGE NO. 169] III) THE COMMON AREA MAINTENANCE IS TO BE REC OVERED @ RS. 6 PER SQ. FT. OR THE ACTUALS, WHICHEVER IS HIGHER. [PAGE NO. 186] IV) THE SERVICES TO BE PROVIDED AT THE COST O F THE LESSEE IS THE MAINTENANCE AND UPKEEP OF THE COMMON AREAS [PAGE NO . 186] V) LOCK-IN PERIOD OF 6 YEARS. [PAGE NO. 173] VI) THE COMMON FACILITIES AND COMMON AREAS TO BE UTILIZED BY THE LESSEE WHICH SHALL BE MAINTAINED BY THE LESSOR. [PA GE NO. 186] E) SUJAL ADVERTISING ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 8 HOARDING RIGHTS FOR INSTALLATION OF TWO HOARDINGS O N THE BUILDING IS GIVEN IN CONSIDERATION OF ANNUAL RENT OF RS.3,60,000/-. F) CAFE NOIR I) THE LEASE IS FOR A PERIOD OF 9 YEARS AND THE L EASE RENT PAYABLE IS ON LUMPSUM BASIS @ RS. 80.0007- IN THE FIRST YEAR, RS. 90,000 IN THE SECOND YEAR AND SO ON UPTO 5 YEARS. [PAGE NO. 196] II) LOCK-IN PERIOD OF 3 YEARS. [PAGE NO. 199 ] 10. REFERRING TO THE ABOVE, IT WAS EMPHASIZED THAT THE TERMS OF AGREEMENT WITH EACH OF THE PARTIES IS DIFFERENT. IN THE CASE OF RE LIANCE TRENDS, IT WAS POINTED OUT THAT THE LICENCE FEES WAS TO BE QUANTIFIED AS P ERCENTAGE OF THE NET SALES OR AN AGREED RENT. 11. IT WAS ALSO POINTED OUT THAT ALONG WITH THE PREMISE S, A LARGE NUMBER OF SERVICES WERE ALSO REQUIRED TO BE PROVIDED. IT WAS STATED TH AT THE ACTIVITY OF LEASE WITH EACH OF THE LESSEES IS COMPLEX AND INVOLVES THE RIS K. THE ACTIVITIES ARE CARRIED OUT ON A SYSTEMATIC AND ON REGULAR BASIS IN THE NAT URE OF BUSINESS. THEREFORE, SUCH INCOME WAS REQUIRED TO BE TAXED AS THE BUSINES S INCOME. 12. IT WAS ALSO POINTED OUT THAT THE ASSESSEE COMPANY H AS NO OTHER ACTIVITY AND THIS IS THE ONLY ACTIVITY AND BUSINESS. FOR SUBSTANTIATI ON OF THIS CONTENTION, THE EXTRACTS OF THE PROFIT & LOSS ACCOUNT FOR THE A.Y. 2011-12 TO 2013-14 WERE FURNISHED BEING REPRODUCED: PARTICULARS 2012-13 2011-12 2010-11 A.INCOME 362.65 372.30 205.82 B. EXPENDITURE ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 9 A)COST OF SERVICES RENDERED 111.97 114.21 68.57 B)FINANCE COST 152.55 161.17 124.38 C)DEPRECIATION 71.41 78.66 85.02 D)OTHERS 9.38 17.45 9.58 TOTAL (A TO D) 345.31 3761.49 287.55 C.PROFIT 17.34 0.81 (81.73) [REF. PAGE NO. 256] [REF. PAGE NO. 256] [REF. PAGE NO. 35] 13. THE ASSESSEE SUBMITTED THAT IT HAS TO INCUR SUBSTAN TIAL EXPENSES TOWARDS MAINTENANCE, SECURITY, CLEANING, REPAIRS & MAINTENA NCE, ELECTRICITY CHARGES, ETC. IT HAS TO MAINTAIN REGULAR STAFF AND EMPLOYEES EITH ER ON CONTRACT OR ON REGULAR BASIS FOR RENDERING ALL THE SERVICES AS AGREED WITH THE LESSEES. 14. THE ASSESSEE ALSO RELIED ON VARIOUS DECISIONS IN SU PPORT OF THE CLAIM THAT THE INCOME OF THE ASSESSEE, IN THE FACTS OF THE CASE, S HALL BE INCOME FROM BUSINESS. THE DECISIONS RELIED ARE CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT - 56 TAXMANII.COM 456 (SC) RAYALA CORPORATION PVT. LTD. VS. ACIT 72 TAXMANN.CO M 149 (SC) PR. CIT VS. ATLANTIS MULTIPLEX PVT. LTD. IN ITA NOS . 71/2017 AND 61/2017 (ALL.) ITO VS. NISHTA MALL MANAGEMENT CO. PVT. LTD. IN ITA NO. 5882/MUM/20LO DATED 30.10.2015 (MUM. TRIB.) PFH & RETAIL MANAGEMENT LTD. VS. ITO - 110 ITD 337 (KOLKATA TRIB.) ACIT VS. STELLER DEVELOPER PVT.LTD. 54 TAXMANN.COM 252 (MUMBAI TRIB.) ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 10 15. IN CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT - 56 TAXMANII.COM 456 (SC). THE HONBLE APEX COURT HELD : SECTION 28(I), READ WITH SECTION 22, OF THE INCOME -TAX ACT, 1961 - BUSINESS INCOME -CHARGEABLE AS (LETTING OUT OF PROP ERTIES) - WHETHER WHERE IN TERMS OF MEMORANDUM OF ASSOCIATION, MAIN O BJECT OF ASSESSEE-COMPANY WAS TO ACQUIRE PROPERTIES AND EARN INCOME BY LETTING OUT SAME, SAID INCOME WAS TO BE BROUGHT TO TAX AS BUSINESS INCOME AND NOT AS INCOME FROM HOUSE PROPERTY - HELD , YES [PARAS 5 AND 11] [IN FAVOUR OF ASSESSEE] 16. WITH RESPECT TO THE APPEAL FOR THE A.Y. 2010-1L IT WAS STATED THAT THE BUSINESS OF THE ASSESSEE IS REQUIRED TO BE CONSIDERED AS COM MENCED FROM THE F.Y. 2005- 06 ITSELF WHEN THE LAND REQUIRED FOR CONSTRUCTION O F THE MALL WAS PURCHASED. AS PER THE METHOD OF ACCOUNTING PRESCRIBED AS PER AS-1 6 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE INTEREST COS T INCURRED UP TO THE DATE OF COMPLETION OF THE BUILDING IS CAPITALIZED BEING ATT RIBUTABLE TO THE CONSTRUCTION. THE INTEREST EXPENSE INCURRED AFTER THE DATE OF COM PLETION AND ALL OTHER EXPENSES LIKE ADMINISTRATIVE AND OTHER EXPENSES WHI CH ARE NOT ATTRIBUTABLE TO THE CONSTRUCTION OR CREATION OF ASSET IS CLAIMED AS REVENUE EXPENDITURE RESULTING INTO LOSS. ACCORDING TO HIM, SUCH LOSS IS TO BE ALL OWED. RELIANCE WAS PLACED ON UNDER NOTED JUDGMENTS: DHOOMKETU BUILDERS & DEVELOPMENT PVT. LTD. VS. ACIT 17 TAXMANN.COM 36 (TRIB.DELHI)-CONFIRMED IN 34 TAXMANN.COM 18 (DELHI) TETRON COMMERCIAL LTD. VS. CIT 261 ITR 422 (CAL) HOTEL ALANKAR VS. CIT 133 ITR 866 (GUJ.) HAGWOOD COMMERCIAL DEVELOPERS PVT. LTD. VS. ACIT 82 TAXNIANN.COM 475 MUM. TRIB.) ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 11 17. IN HAGWOOD COMMERCIAL DEVELOPERS PVT. LTD. VS. ACIT 82 TAXNIANN.COM 475 MUM. TRIBUNAL HELD : SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINE SS EXPENDITURE - ALLOWABLITY OF (CAPITAL V. REVENUE EXPENDITURE) - A SSESSMENT YEAR 2012- 13 - ASSESSEE WAS ENGAGED IN CONSTRUCTION OF A MALL - THERE WAS NO BUSINESS INCOME AND PROJECT WAS STILL UNDER PROGRES S, ASSESSEE HAD DEBITED ADMINISTRATIVE AND OVERHEAD EXPENSES TO ITS PROFIT AND LOSS ACCOUNT OF YEAR IN WHICH THEY WERE INCURRED - ASSES SEE SUBMITTED THAT SAID EXPENDITURE WAS NOT ADDED TO CAPITAL WORK-IN-P ROGRESS AS SAME WAS NOT INCURRED FOR PURPOSE OF PROJECT - IT WAS FO UND THAT ASSESSEE WAS FOLLOWING AS2 AND AS7 ISSUED BY ICAL WHICH WAS MAND ATORY STANDARDS WHEREBY DIRECT COSTS WERE ADDED TO CAPITAL WORK-IN- PROGRESS BEING CONSTRUCTION OF MALL AND RESIDENTIAL COMPLEX AND AL L INDIRECT EXPENSES BEING GENERAL OVERHEAD WERE CHARGED TO PROFIT AND L OSS ACCOUNT - WHETHER SINCE ASSESSEE HAD SET UP BUSINESS BY ACQUI RING LAND AND OBTAINING APPROVAL FOR CONSTRUCTION OF MALL AND RES IDENTIAL COMPLEX, ALTHOUGH MALL HAD NOT COMMENCED BUSINESS TILL END O F RELEVANT YEAR, ASSESSEE HAD RIGHTLY DEBITED GENERAL OVERHEAD EXPEN SES BEING INDIRECT EXPENSES INCURRED, IN PROFIT AND LOSS ACCOUNT - HEL D, YES [PARA 8] [IN FAVOUR OF ASSESSEE] 18. THE LD. D.R. DID NOT CONTROVERT THE FACTUAL SUBMISS IONS NOR HAS BROUGHT TO THE NOTICE ANY CONTRARY JUDGMENTS. 19. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. THE CONSTRUCTION OF THE BUILDING IS COMMENCED IN THE FI NANCIAL YEAR 2007-08 AND IS COMPLETED IN THE FINANCIAL YEAR 2009-10. THE SOURCE OF FUNDS FOR THE CONSTRUCTION OF MALL BEING OWN FUNDS, UNSECURED LOA NS FROM PROMOTERS AS ALSO ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 12 BORROWING TO THE EXTENT OF RS. 8.65 CRORES FROM FIN ANCIAL INSTITUTIONS. THE COMPANY HAD STARTED MARKETING THE AVAILABILITY OF P REMISES IN THE MALL AND ENTERED INTO A MOU DATED 19.02.2007 WITH CINEMAX PR OPOSING THE BROAD TERMS ON WHICH THE PROPERTY WOULD BE LICENSED/LEASED. IN THE ACCOUNTS PREPARED FOR THE FINANCIAL YEAR 2008-09, THE BUSINESS OF THE CON STRUCTION OF MALL HAD ALREADY COMMENCED AND THE APPELLANT DERIVED SOME IN COME FROM RENTING OF HOARDING SIGNS ETC. AND MAINLY COMPANY IS ENGAGED I N RENTING OF PREMISES AND IN THE ASSESSMENT YEAR 2010-11, LD. A.O. DENIED THE CLAIM OF LOSS OF RS.2,46,03,893/- AS CLAIMED IN THE RETURN OF INCOM E HOLDING THAT ASSESSEES PROJECT WAS STILL UNDER CONSTRUCTION AND THAT THE L OSS COULD NOT BE ALLOWED. 20. IN APPEAL BEFORE LD. CIT(A), APPELLANT CONTENDED TH AT IT HAD SET UP ITS BUSINESS DURING THE YEAR AND MALL UNDER CONSTRUCTION WAS CAP ITALIZED AND CONTENDED THAT LOSS WAS REQUIRED TO BE ALLOWED. BUT LD. CIT(A) HEL D THAT INCOME OF THE APPELLANT TO BE TAXED UNDER THE HEAD INCOME FROM HO USE PROPERTY. 21. AS WE CAN SEE, THAT IN SIMILAR CIRCUMSTANCES, HONB LE SUPREME COURT IN THE MATTER OF CHENNAI PROPERTIES & INVESTMENTS LTD. (SU PRA) DECIDED MATTER IN FAVOUR OF THE ASSESSEE HOLDING THAT INCOME FROM REN TING A PROPERTY OF MALL TO BE TREATED AS BUSINESS INCOME AND IN THOSE CIRCUMST ANCES, APPELLANT CASE IS FULLY COVERED BY THE AFORESAID JUDGMENT. ITAT BENCH OF MU MBAI IN THE MATTER OF HAGWOOD COMMERCIAL DEVELOPERS PVT. LTD. (SUPRA) HAS ALSO GIVEN FINDING IN FAVOUR OF ASSESSEE. TO THE EFFECT THAT EVEN IF MALL HAD NOT COMMENCED BUSINESS TILL END OF RELEVANT YEAR, ASSESSEE HAD RIGHTLY DEB ITED GENERAL OVERHEAD EXPENSES BEING INDIRECT EXPENSES INCURRED, IN PROFIT AND LOS S ACCOUNT. THUS, WE ARE CONSIDERED OPINION, THAT IN ASSESSEES CASE, THE IN COME FROM RENTING A PROPERTIES IN MALL TO BE TAXED AS BUSINESS INCOME A ND NOT INCOME FROM HOUSE PROPERTY AS WELL AS BUSINESS LOSS ALSO TO BE ALLOWE D. ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 13 22. SO FAR INITIATING OF PENALTY PROCEEDING U/S. 271(1) (A) IS CONCERNED, SAME ARE PREMATURE. THUS, WE DO NOT WANT TO COMMENT ON THAT. 23. IN THE RESULT, APPEAL FILED BY THE APPELLANT IS ALL OWED. ITA NO. 1865/AHD/2016 FOR A.Y. 2011-12. 24. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS: 1. THE LD. CIT(A)-2, VADODARA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING 5% OF EXPENSES INCURRED UNDER THE HEADS REPAIRS MAINTENAN CE AND OTHER DIRECT EXPENSES IS IN COMPLETE DISREGARD OF AVAILABLE MATE RIAL AND FACTS. THE DISALLOWANCE OF EXPENSES OF 5% I.E. RS. 1,07,176/- IS PRAYED TO BE DELETED. 2. THE LD. CIT(A)-2, VADODARA HAS ERRED IN ENHANCING THE INCOME OF THE APPELLANT IN COMPLETE DISREGARD OF THE FACTS AND MATERIAL PLACED ON RECORD. 3. THE LD. CIT(A)-2, VADODARA HAS ERRED IN LAW AND IN FACTS BY WRONGLY TREATED THE ENTIRE INCOME DECLARED BY THE APPELLANT AS INCOME F ROM HOUSE PROPERTY WITHOUT CONSIDERING THE FACT THAT THE SAME IS INCOME EARNED FROM BUSINESS. THE IMPUGNED ADDITION BEING IN COMPLETE DISREGARDS OF T HE APPLICABLE FACTS AND LAW IS PRAYED TO BE DELETED. 25. SINCE WE HAVE GIVEN RELIEF TO THE APPELLANT IN THE PRECEDING YEAR AND HAS HELD THAT INCOME FROM RENTING OF MALL TO BE TREATED AS B USINESS INCOME. THUS, DISALLOWANCE OF EXPENSES OF 5% I.E. RS. 1.07,16,176 /-. 26. IN THE RESULT, THIS APPEAL IS ALSO ALLOWED. ITA NO. 1864/AHD/2016 FOR AY. 2012-13. 27. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS: ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 14 1. THE LD. CIT(A)-2, VADODARA HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD. A.O. AND WRONGLY TREATED THE ENTIRE INCOME DECLARED BY T HE APPELLANT AS INCOME FROM HOUSE PROPERTY WITHOUT CONSIDERING THE FACT THAT TH E SAME IS INCOME EARNED FROM BUSINESS. THE IMPUGNED ADDITION BEING IN COMPLETE D ISREGARDS OF THE APPLICABLE FACTS AND LAW IS PRAYED TO BE DELETED. 2. THE LD. CIT(A)-2, VADODARA HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD. A.O. AND NOT ALLOWED THE DEPRECIATION CLAIMED BY THE APP ELLANT ON THE MALL WITHOUT CONSIDERING THE FACT THAT THE APPELLANT IN THE BUSI NESS OF RUNNING A MALL AND GIVING ITS SPACE ON RENT. THE IMPUGNED ADDITION BEING IN COMPL ETE DISREGARDS OF THE APPLICABLE FACTS AND LAW IS PRAYED TO BE DELETED. 28. SINCE WE HAVE GIVEN RELIEF TO THE APPELLANT IN EARL IER TWO YEARS, WE REITERATE IN THIS APPEAL THAT RENTING OF PROPERTY OF MALL INCOME TO BE A BUSINESS INCOME. . ITA NO. 3487/AHD/2016 FOR A.Y. 2013-14 29. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS: 1. THE LD. CIT(A)-2, VADODARA HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD. A.O. AND WRONGLY TREATED THE ENTIRE INCOME DECLARED BY T HE APPELLANT AS INCOME FROM HOUSE PROPERTY WITHOUT CONSIDERING THE FACT THAT TH E SAME IS INCOME EARNED FROM BUSINESS. THE IMPUGNED ADDITION BEING IN COMPLETE D ISREGARDS OF THE APPLICABLE FACTS AND LAW IS PRAYED TO BE DELETED. 2. THE LD. CIT(A)-2, VADODARA HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD. A.O. AND NOT ALLOWED THE DEPRECIATION CLAIMED BY THE APP ELLANT ON THE MALL WITHOUT CONSIDERING THE FACT THAT THE APPELLANT IN THE BUSI NESS OF RUNNING A MALL AND GIVING ITS SPACE ON RENT. THE IMPUGNED ADDITION BEING IN COMPL ETE DISREGARDS OF THE APPLICABLE FACTS AND LAW IS PRAYED TO BE DELETED. ITA NO 3034/ AHD/2014 & ITA NOS. 1865, 1866 & 3487/AHD/2016 . A.YS. 2010- 11 TO 2013-14 15 30. IN THIS APPEAL, NOTHING NEW FACTS HAVE EMERGED AND IN EARLIER PRECEDING THREE YEARS, WE HAVE GIVEN RELIEF TO THE APPELLANT. HENCE , FOLLOWING THE EARLIER ONCE, WE ALLOW THIS APPEAL AS WELL. 31. IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE AS SESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 15 - 10- 2018 SD/- SD/- (PRAMOD KUMAR) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 15 /10/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD