M/s Convention Hotels India Pvt Ltd , Bangalore V. Income Tax Officer Ward-2(1)(2), Bangalore

ITA 562/BANG/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0652 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 19-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K N DHANDA
• Keywords: Business income; Earning of tax free income; Rule 8D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA 562/BANG/2019 A. Y : 2013 14 M/S. CONVENTION HOTELS INDIA PVT. LTD., NO. 109, AEROLEX CENTRE, 4 TH FLOOR, K H ROAD, BENGALURU. PAN NO : AACCC8902G VS. INCOME TAX OFFICER, WARD 2(1) (2), BENGALURU. APPELLANT RESPONDENT A PPELLANT BY : S H RI. YOGESH JOIJODE , C.A RE SPONDENT BY : SHRI. K. N. DHANDAPANI , ADDL. CIT DR DATE OF H EARING : 12. 1 2 .2019 DATE OF PRONOUNCEMENT : 20 . 1 2 .2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 21/01/2019 PASSED BY LD. CIT (A) 2, BANGALORE FOR ASSESSMENT YEAR 2013 14 ON FOLLOWING GROUNDS OF APPEAL : ITA 562/BANG/2019 PAGE 2 OF 8 ITA 562/BANG/2019 PAGE 3 OF 8 BRIEF FACTS OF THE CASE ARE AS UNDER: 2 ASSESSEE IS A COMPANY AND FILED ITS RETURN OF INCOME ON 03/09/13 DECLARING TOTAL INCOME OF RS. 17, 74, 600/-. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO ASSESSEE IN RESPONSE TO WHICH REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO AND PRODUCED DETAILS AS CALLED FOR. 3 LD. AO OBSERVED THAT ASSESSEE COMMENCED TRIAL RUN OF OPERATIONS OF A HOTEL DURING THE YEAR. THE NET LOSS IN RESPECT OF TRIAL RUN AMOUNTED TO RS. 9, 60, 575/-AND THAT ASSESSEE RECEIVED RENT OF RS. 37, 04, 675/-FROM GLOBAL STONE INDIA LIMITED. LD. AO OBSERVED THAT ASSESSEE NETTED THESE AMOUNT TO RS. 27, 44, 100/- AND REDUCED THE SUM OF RS. 27, 44, 100/-FROM CAPITAL WORK IN PROGRESS. ASSESSEE WAS CALLED UPON TO EXPLAIN WHY THE SUM OF RS. 37, 04, 675/-SHOULD NOT BE TREATED AS INCOME FROM HOUSE PROPERTY. 4 ASSESSEE IN ITS REPLY DATED 15/03/16 SUBMITTED THAT THE RENTAL INCOME GENERATED WAS REDUCED FROM CAPITAL WORK IN PROGRESS BECAUSE IT RELATED TO THE PROJECT WHICH WAS UNDER CONSTRUCTION. IT WAS ALSO SUBMITTED BY ASSESSEE THAT RENT EASE FROM EMPTY IN THE PROJECT UNDER CONSIDERATION. ASSESSEE ALSO PRODUCED LEASE AGREEMENT WITH M/S. GLOBAL STONE INDIA LTD., LD. AO OBSERVED THAT RENT RECEIVED FROM GLOBAL STONE INDIA LTD EASE FROM BUILDING LOCATED AT HYATT PLACE BANGALORE AND SIMPLE NO. ITA 562/BANG/2019 PAGE 4 OF 8 496 BEHIND HP COMPANY OF WHITEFIELD BANGALORE 48. LD. AO THUS WAS OF THE OPINION THAT RENT FROM A BUILDING CANNOT BE REDUCED FROM CAPITAL WORK IN PROGRESS AND ACCORDINGLY DISALLOWED THE SUM OF RS. 37, 04, 675/-AND TREATED THE SAID INCOME AS INCOME FROM HOUSE PROPERTY AND RS. 9, 60, 575/-AS BUSINESS LOSS. 5 LD. AO ALSO OBSERVED THAT ASSESSEE HAS CAPITALISED 90% OF EXPENSES INCURRED IN RESPECT OF TRIAL RUN OPERATION OF HOTEL AMOUNTING TO RS. 36, 63, 515/-. ASSESSEE CAPITALISED 90% OF THIS EXPENSES AND DEBITED 10% OF EXPENSES TO P&L ACCOUNT WHICH WAS ACCEPTED BY LD. AO. 6 AGGRIEVED BY ADDITION MADE BY LD. AO ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO UPHELD THE ADDITION SO MADE. AGGRIEVED BY ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 6.1 GROUND NO. 1-2 HAS BEEN RAISED WITH REGARDS TO REDUCING THE CAPITAL WORK IN PROGRESS TO THE EXTENT OF RS.25,93,272/- AND TREATING RENT RECEIVED FROM BUILDING TO BE INCOME FROM HOUSE PROPERTY AND LOSS EARNED FROM RUNNING HOTEL AT GOA AS BUSINESS LOSS. 7. LD. AR SUBMITTED THAT THE RENTAL INCOME AND THE LOSS ARE DIRECTLY CONNECTED TO BUSINESS CARRIED OUT BY ASSESSEE. IT SUBMITTED THAT ASSESSEE PARTLY COMMENCED TRIAL RUN OPERATION AT HOTEL AT GOA AND THE NET LOSS FROM THE SAID TRIAL RUN WAS CONSIDERED UNDER THE HEAD CAPITAL WORK IN PROGRESS. IT HAS ALSO BEEN SUBMITTED THAT ASSESSEE EARNED CERTAIN RENT FROM LEASING OF COMMERCIAL PREMISES PERTAINING TO ITS BANGALORE PROJECT DURING ITA 562/BANG/2019 PAGE 5 OF 8 PART OF THE YEAR AND REDUCED THE SAME FROM CAPITAL WORK IN PROGRESS. HE SUBMITTED THAT ASSESSING OFFICER HAS MADE DISALLOWANCE WITHOUT APPLICATION OF MIND AND THEREFORE DESERVES TO BE DELETED. 8 ON THE CONTRARY LD. SR. DR SUBMITTED THAT ASSESSEE NETTED THESE AMOUNTS BEING RENT RECEIVED AMOUNTING TO RS.37,04,675/- AND TRIAL RUN EXPENSES AMOUNTING TO RS.9,60,575/- FROM CAPITAL WORK IN PROGRESS. HE SUBMITTED THAT RENTAL INCOME CANNOT BE REDUCED FROM CAPITAL WORK IN PROGRESS AS IT IS GENERATED OUT OF A DIFFERENT NATURE OF INCOME. FURTHER HE SUBMITTED THAT THE RENTAL INCOME IS FROM COMMERCIAL BREAK BUILDING LOCATED AT BANGALORE. HE PLACED RELIANCE UPON THE ORDERS PASSED BY LD. CIT (A). 9 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. ADMITTEDLY THE CONSTRUCTION OF BUILDING HOTELS WAS NOT COMPLETED DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD RENTED PART OF SUCH BUILDING AND HAD EARNED RENTAL INCOME. THE PRIMARY BUSINESS OF ASSESSEE IS TO CONSTRUCT OF HOTELS AND THEN RUNNING THE HOTELS AND EARNING THE INCOME WHICH WILL BE TAXED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. MERELY BECAUSE ASSESSEE EARNED RENTAL INCOME DURING THE CONSTRUCTION PERIOD OF THE HOTEL WHICH WAS NOT COMPLETED EVEN TILL THE END OF FINANCIAL YEAR UNDER CONSIDERATION, THE NATURE OF RENTAL INCOME WOULD NOT PASSED TAKE THE CHARACTER OF BUSINESS INCOME. IN OUR VIEW LD. CIT (A) WAS RIGHT IN UPHOLDING THE RENTAL INCOME EARNED BY ASSESSEE TO BE INCOME ITA 562/BANG/2019 PAGE 6 OF 8 FROM HOUSE PROPERTY AGAINST WHICH STANDARD DEDUCTION IS ONLY ALLOWABLE. GROUND NO.2 10 AS REGARDS TRIAL RUN EXPENDITURE WHICH HAS BEEN TREATED AS BUSINESS LOSS AS AGAINST TREATING IT AS A PART OF CAPITAL WORK IN PROGRESS IS NOT ACCEPTABLE. THE TRIAL RUN EXPENDITURE IS INCURRED BY ASSESSEE WAS OUT OF OPERATIONS HOTEL ACT GOA DURING THE YEAR UNDER CONSIDERATION. AS ASSESSEE IS INTO THE BUSINESS OF CONSTRUCTION OF HOTEL AND RUNNING BUSINESS OF HOTEL, THE TRIAL RUN EXPENDITURE CANNOT BE CONSIDERED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND HAS TO BE TREATED AS LOSS FROM HARTEL AT GOA FOR THE YEAR UNDER CONSIDERATION. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A) AND THE SAME IS UPHELD. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS DISMISSED. GROUND NO. 3 IS IN RESPECT OF DISALLOWANCE UNDER SECTION 14 A TO THE EXTENT OF RS.5,54,194/-. 11 IT HAS BEEN SUBMITTED THAT ASSESSEE INVESTED IN ITS SUBSIDIARY COMPANIES AS ON 31/03/13 AMOUNTING TO RS.17,27,49,990/-. IT HAS BEEN SUBMITTED THAT THESE ARE OLD INVESTMENTS AND DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. LD.AR SUBMITTED THAT IN ADDITION ASSESSEE HAD INVESTED IN MUTUAL FUNDS AMOUNTING TO RS.50,02,230/- AGAINST WHICH ASSESSEE MADE SUO MOTO DISALLOWANCE OF RS.12,560/-. HE SUBMITTED THAT LD.AO COMPUTED DISALLOWANCE UNDER SECTION 14 A, TO THE EXTENT OF RS.8,76,256/- UNDER RULE 8D (2) (III) BEING 0.5% OF ITA 562/BANG/2019 PAGE 7 OF 8 AVERAGE INVESTMENT. HE SUBMITTED THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE RESTRICT THE DISALLOWANCE TO RS.12,560/-. 12 LD. SR. DR PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT THOUGH THERE IS BE NO EXEMPT INCOME ASSESSEE HAS OFFERED SUO MOTO DISALLOWANCE OF RS.12,560/-. IN OUR VIEW TO THE PECULIAR FACTS OF THIS CASE THE DISALLOWANCE CANNOT EXCEED RS.12,560/-AND THEREFORE DELETE THE ADDITION MADE BY LD. AO. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS ALLOWED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2019. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER SD/- (BEENA PILLAI) JUDICIAL MEMBER BANGALORE, DATED, 20 TH DECEMBER, 2019. /MK/ COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. ITA 562/BANG/2019 PAGE 8 OF 8 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR. P. S. .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED