Appeal Details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 4498 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-01-2016
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Next Hearing Date
05-01-2016
Assessment Year
2009-2010
Appeal Filed On
21-05-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, ACCOUNTANT MEMBER / I .T A NO.3879/M/2014 ( / ASSESSMENT YEAR : 2009 - 10 M/S. WEST PIONEER PROPERTIES (INDIA) PVT. LTD., 1002, 10 TH FLOOR, TOWER - 3 INDIABULLS FINANCE CENTRE, SENAPATI BAPAT MARG, ELPHINSTONE ROAD, MUMBAI - 400 013 / VS. THE ACIT - 5(3), AAYAKAR BHAVAN, MUMBAI 400 020 / I .T A NO. 3 599 /M/2014 ( / ASSESSMENT YEAR : 2009 - 10 THE ACIT - 5(3), AAYAKAR BHAVAN, MUMBAI 400 020 / VS. M/S. WEST PIONEER PROPERTIES (INDIA) PVT. LTD., 1002, 10 TH FLOOR, TOWER - 3 INDIABULLS FINANCE CENTRE, SENAPATI BAPAT MARG, ELPHINSTONE ROAD, MUMBAI - 400 013 ./ ./ PAN/GIR NO. AAACW 5756A ( / APPELLANT ) .. ( / RESPONDENT ) / A SSESSEE BY: SHRI VIJAY MEHTA / DEPARTMEN T BY: SHRI B.B. RAJENDRA PRASAD / DATE OF HEARING : 0 5 . 01 . 201 6 / DATE OF PRONOUNCEMENT : 05 . 0 1 .201 6 / O R D E R ITA. NO S3599 & 3879/M/14 . 2 PER N.K. BILLAIYA, AM: THESE ARE CROSS APPEALS B Y THE ASSESSEE AND THE REVENUE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A) - 9, MUMBAI DATED 20.3.2014 PERTAINING TO ASSESSMENT YEAR 2009 - 10. AS BOTH THESE APPEALS WERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ITA NO. 3879/M/2014 ASSESEES APPEAL 2. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE TREATMENT OF PROPERTY LEASE INCOME AS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 3. WHILE SCRUTINIZING THE INCOME FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CONSTRUCTED A MALL NAMED METRO JUNCTION MALL AT KALYAN WHICH HAS BEEN LET OUT TO VARIOUS PARTIES WITHOUT A SINGLE SHOP SOLD. THE AO FURTHER FOUND THAT THE ASSESSEE HAS DISCLOSED PROPERTY LEASE INCOME OF RS. 6,10,92,422/ - RECEIVED FROM LETTING OUT OF THE SHOPS. IN ADDITION TO THIS, THE ASSESSEE IS ALSO PROVIDING VARIOUS SERVICES TO ITS TENANTS AND HAS RECEIVED RS. 5,70,88,487/ - UNDER THE HEAD RECOVERY OF COMMON AREA MAINTENANCE AND UTILITY EXPENSES. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROPERTY LEASE INCOME SHOULD NOT BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND ACCORDINGLY WHY THE CLAIM OF DEPRECIATION SHOULD NOT BE DISALLOWED ALO NG WITH THE CLAIM OF BROKERAGE EXPENSES. ITA. NO S3599 & 3879/M/14 . 3 3.1. THE ASSESSEE FILED A DETAILED REPLY VIDE LETTER DATED 8.12.2011 CATEGORICALLY EXPLAINING THE MAIN OBJECT FOR WHICH THE ASSESSEE COMPANY IS INCORPORATED AND JUSTIFIED THE CLAIM OF PROPERTY LEASE INCOME AS BUS INESS INCOME OF THE ASSESSEE AND SIMULTANEOUSLY THE CLAIM OF DEPRECIATION AND BROKERAGE EXPENSES. THE DETAILED EXPLANATION FILED BY THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO WHO PROCEEDED BY TREATING THE PROPERTY LEASE INCOME AS INCOME UNDER THE H EAD HOUSE PROPERTY, DENIED THE CLAIM OF DEPRECIATION AND BROKERAGE EXPENSES AND ALLOWED THE STATUTORY DEDUCTION OF 30%. THE AO FURTHER DISALLOWED THE CLAIM OF INTEREST EXPENSES HOLDING THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES WHILE IT HAS PAID INTEREST ON ITS BORROWINGS. THE AO FURTHER MADE DISALLOWANCE U/S. 14A OF THE ACT. ONCE AGAIN TREATING A PART OF THE INTEREST EXPENDITURE BEING INCURRED FOR EARNING EXEMPT INCOME AND COMPLETED THE ASSESSMENT. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM OF INCOME TO BE TAXED UNDER THE HEAD PROFITS & GAINS OF BUSINESS SIMULTANEOUSLY JUSTIFYING THE CLAIM OF DEPRECIATION AND BROKERAGE EXPENSES. HOWEVER, THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO SO FAR AS THIS ISSUE IS CONCERNED. 4.1. IN SO FAR AS THE CLAIM OF INTEREST EXPENDITURE IS CONCERNED, THE LD. CIT(A) DIRECTED TO ALLOW THE CLAIM PROPORTIONATELY I.E. THAT PORTION WHICH IS USED FOR EARNING THE BUSINESS INCOME. IN SO FAR AS THE ISSUE R ELATING TO THE DISALLOWANCE MADE U/S. 14A IS CONCERNED, THE LD. CIT(A) DIRECTED THE AO TO EXCLUDE THAT PORTION OF THE INTEREST WHICH HAS BEEN DISALLOWED U/S. 36 OF THE ACT. ITA. NO S3599 & 3879/M/14 . 4 5. AGGRIEVED BY THIS FINDING OF THE LD. CIT(A), THE ASSESSEE AND THE REVENUE A RE IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL DREW OUR ATTENTION TO THE ASSESSMENT ORDER FOR A.Y. 2008 - 09 AND POINTED OUT THAT THE PROPERTY LEASE INCOME HAS BEEN ACCEPTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS BY AN ORDER MADE U/S. 143(3) OF THE ACT DATED 24.12.2010. THE LD. COUNSEL FURTHER TOOK US TO THE RENT AGREEMENT EXHIBITED AT PAGES 52 ONWARDS IN THE PAPER BOOK POINTING OUT SPECIFICALLY AT PAGE - 63 TH AT THE ASSESSEE IS RECEIVING THE LEASE INCOME DEPENDING UPON THE QUANTUM OF SALES BY THE LESSEE. THE LD. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. E - CITY PROJECT CONSTRUCTION PVT. LTD. IN ITA NO. 8390/M/2010, 1435 & 1436/M/2012 AND 1230/M/2013. IT IS THE SAY OF THE LD. COUNSEL THAT ON IDENTICAL SET OF FACTS, THE TRIBUNAL HAS HELD THAT INCOME RECEIVED BY THE ASSESSEE FROM RUNNING AND OPERATIONS OF A MALL AND SERVICE CHARGES RECOVERED AS CHARGEABLE UNDER THE HEAD PROFITS & GAINS O F BUSINESS. THE LD. COUNSEL FURTHER POINTED OUT THAT IN THIS CASE THE TRIBUNAL HAS ALSO CONSIDERED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RUNWAL DEVELOPERS PVT. LTD. WHICH HAS BEEN CONSIDERED BY THE LD. CIT(A). 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE JUDICIAL DECISIONS RELIED UPON BY THE LD . COUNSEL. THE ENTIRE DISPUTE HAS TO BE ITA. NO S3599 & 3879/M/14 . 5 CONSIDERED IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD VS CIT 373 ITR 673 WHEREIN THE HONBLE APEX COURT HAS HELD THAT LETTING OUT OF THE PROPERTIES BEING THE BUSINESS OF THE ASSESSEE, THE INCOME FROM WHICH HAS TO BE TREATED AS INCOME FROM BUSINESS. THE HONBLE SUPREME COURT HAS FURTHER OBSERVED THAT THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY CLEARLY MENTIONS THAT MAIN OBJECTS IS TO ACQ UIRE AND HOLD THE PROPERTIES AND HOLDING THE AFORESAID PROPERTIES AND EARNING INCOME BY LETTING OUT THOSE PROPERTIES IS THE MAIN OBJECTIVE OF THE COMPANY. THEREFORE, ANY INCOME EARNED HAS TO BE TAXED UNDER THE HEAD INCOME FROM BUSINESS. 8.1. IN THE PR ESENT CASE ALSO WE FIND THAT IN A.Y. 2008 - 09, THE AO HIMSELF HAS ACCEPTED THE NATURE OF BUSINESS OF THE ASSESSEE AS OPERATION OF MALL THEREFORE ANY INCOME EARNED BY THE ASSESSEE BY THE OPERATION OF MALL HAS TO BE TAXED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. THE MAIN OBJECT OF THE COMPANY AS PER THE MEMORANDUM OF ASSOCIATION ALSO REFERS TO SUCH ACTIVITIES AS THE MAIN OBJECT FOR WHICH THE COMPANY IS INCORPORATED. AS THE MAIN OBJECT ITSELF SHOWS THAT THE ASSESSEE - COMPANY HAS BEEN INCORP ORATED FOR RUNNING SHOPPING MALLS /DEPARTMENTAL STORES, SUPER MARKETS, SHOPPING ARCADES, SHOPPING OUTLETS, ENTERTAINMENT, RECREATION AND AMUSEMENT CENTRE THEREFORE ANY INCOME EARNED FROM SUCH ACTIVITIES HAS TO BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THIS WILL BE IN LINE WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENT LTD (SUPRA). WE, ACCORDINGLY SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO TREAT THE INCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS. ITA. NO S3599 & 3879/M/14 . 6 8.2. HAVING HELD THAT THE INCOME IS TO BE TAXED UNDER THE HEAD PROFITS & GAINS OF BUSINESS. THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION AND ALSO BROKERAGE EXPENSES. THE AO IS DIRECTED TO ALLOW THE SAME. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 9. GROUND NO. 2 RELATES TO THE ADDITION ON ACCOUNT OF NOTIONAL LEASE RENTAL INCOME OF RS. 1,49,70,691/ - . 9.1. FACTS ON RECORD SHOW THAT THE ASSESSEE HAS SHOWN NOTIONAL LEASE RENTAL INCOME OF RS. 1,49,70,691/ - BEING LEASE RENT COMPUTED ON STRAIGHT LINE BASIS PURSUANT TO ACCOUNTING STANDARD - 19 ISSUED BY THE ICAI. IT WAS STRONGLY CONTENDED THAT THE LEASE RENTAL WAS NEITHER ACTUALLY RECEIVED NOR RECEIVABLE BUT IS ONLY COMPUTED ON NOTIONAL BASIS TO COMPLY WITH MANDATORY ACCOU NTING STANDARDS. 9.2. THE CLAIM OF THE ASSESSEE WAS DENIED BY THE REVENUE AUTHORITIES. 9.3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRAIGHTAWAY RELIED UPON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE INDUSTRIAL INFRAST RUCTURE LTD 379 ITR 340. IT IS THE SAY OF THE LD. COUNSEL THAT ON IDENTICAL SET OF FACTS, THE HONBLE HIGH COURT HAS HELD THAT LEASE EQUALIZATION CREDITED TO THE PROFIT AND LOSS ACCOUNT IS NOT THE REAL INCOME AND THE ENTRIES HAVE BEEN MADE TO COMPLY WITH THE G UID ANCE N OTE ISSUED BY THE ICAI. 9.4. THE LD. DR COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. ITA. NO S3599 & 3879/M/14 . 7 9.5. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE CONTENTIONS OF THE LD. COUNSEL. WE FIND THAT THE HONBLE HIGH COURT OF BOM BAY IN THE CASE OF RELIANCE INDUSTRIAL INFRASTRUCTURE (SUPRA) HAD THE OCCASION TO CONSIDER THE FOLLOWING QUESTION RAISED BEFORE IT: (B) WHETHER, IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS RIGHT IN DISMISSING THE REVENUES GROUND OF APPEAL NO. 2 HOLDING THAT THE LEASE EQUALIZATION CREDITED TO THE PROFIT AND LOSS ACCOUNT OVER AND ABOVE THE LEASE RENTAL CANNOT BE CONSIDERED AS INCOME AND THEREBY UPHOLDING REDUCING OF THE ASSESSEES TOTAL INCOME BY LEASE EQUALIZATION OF RS. 2,06,21,580/ - CREDITED TO THE PROFIT AND LOSS ACCOUNT? AND THE HONBLE COURT ANSWERED THE SAME AS UNDER: BE THAT AS IT MAY, ON THE MERITS WE FIND THAT THE AO HAS COMPLETELY MISUNDERSTOOD THE CLAIM OF THE RESPONDENT - ASSESSEE IN RESPECT OF THE LEASE EQUALIZATION FUND. IT IS NOT DISPUTED EVEN BY THE AO THAT THE LEASE RENT WHICH HAS BEEN RECEIVED BY THE RESPOND ENT - ASSESSEE HAS BEEN OFFERED TO TAX. THIS LEASE EQUALIZATION FUND IS A MERE BOOK ENTRY MADE TO COMPLY WITH THE GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA SO AS TO MEET THE ACCOUNTING STANDARDS. FURTHER, EVEN IF ONE ACCEPTS T HE SUBMISSION ON BEHALF OF THE REVENUE THAT THESE GUIDELINES HAVE NOT BEEN NOTIFIED BY THE CENTRAL GOVERNMENT FOR U/S. 145(2) OF THE ACT AND, THUS, CANNOT BE ACCEPTED YET WHAT FOLLOWS IS THAT THE AMOUNT CREDITED AS A LEASE EQUALIZATION FUND TO THE PROFIT AND LOSS ACCOUNT HAS TO BE IGNORED AS IT IS NOT REAL INCOME. IT IS AN AMOUNT WHICH IS COMPLETELY NOTIONAL AND BROUGHT INTO THE BOOKS ONLY FOR COMPLYING WITH THE ACCOUNTING STANDARDS AND HAS NO RELEVANCE TO DETERMINE THE AMOUNT OF NET INCOME CHARGEABLE TO TAX. IN THAT VIEW OF THE MATTER, THE RESPONDENT - ASSESSEE WAS COMPLETELY JUSTIFIED IN REDUCING THE AMOUNT OF RS. 2.06 CRORES CREDITED TO THE PROFIT AND LOSS ACCOUNT AS LEASE EQUALIZATION FUND FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE TO TAX. I N THESE CIRCUMSTANCES, WE FIND THAT QUESTION (B) DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW FOR OUR CONSIDERATION. HENCE, NOT ADMITTED. ITA. NO S3599 & 3879/M/14 . 8 RESPECTFULLY FOLLOWING THE FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DIRECT THE AO TO EXCLU DE THE NOTIONAL LEASE RENTAL INCOME OF RS. 1,49,70,691/ - FROM THE TOTAL INCOME OF THE ASSESSEE. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 10. GROUND NO. 3 & 4 ARE CONSEQUENTIAL TO OUR FINDINGS GIVEN FOR GROUND NO. 1 AND THE SAME ARE TREATED AS ALLOWED. 11. GROUND NO. 5 & 6 RELATE TO THE DISALLOWANCE OF INTEREST (A) FOR GIVING INTEREST FREE ADVANCES (B) FOR EARNING EXEMPT INCOME. 11.1. OUR ATTENTION WAS DRAWN TO THE BALANCE SHEET OF THE ASSESSEE WHICH IS AT PAGE - 1 OF THE PAPER BOOK. IT WAS POINTED OUT THA T ASSESSEES OWN FUNDS STOOD AT RS. 1,623,058,700/ - WHEREAS LOANS AND ADVANCES WERE AT RS. 3,84,24,684/ - AND THE INVESTMENTS WERE AT RS. 4,43,10,582/ - . IT IS THE SAY OF THE LD. COUNSEL THAT ON THESE UNDISPUTED FACTS, THE IMPUGNED ISSUES ARE SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF CIT RELIANCE UTILITIES & POWER LTD., 313 ITR 340. 11.2. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. A PERUSA L OF THE FACTUAL MATRIX ELSEWHERE SHOWS THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENTS AND FOR GIVING INTEREST FREE ADVANCES. THE FACTS OF THE CASE ARE SQUARELY COVERED BY THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES AND POWER LTD (SUPRA) FOLLOWED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS HDFC BANK LTD. 366 ITR 505. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO DELETE THE ITA. NO S3599 & 3879/M/14 . 9 IMPUGNED DISALLOWANCES MADE ON ACCOUNT OF INTEREST EXPENDITURE. GROUND NO. 5 & 6 ARE ACCORDINGLY ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 3599/M/2014 REVENUES APPEAL 13. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO THE ALLOWANCE OF INTEREST EXPENDITURE ON PRO RATA BASIS. 13.1. THE GRIEVANCE OF THE REVENUE HAS BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN ASSESSEES APPEAL QUA GROUND NO. 5 & 6. BY OUR OWN DECISION IN ASSESSEES APPEAL, THE GRIEVANCE OF THE REVENUE B ECOME OTIOSE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE CROSS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON JANUARY , 201 6 . SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 5 TH JANUARY , 201 6 . . ./ RJ , SR. PS ITA. NO S3599 & 3879/M/14 . 10 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
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