2012 (12) TMI 254 - AT - Income Tax

Dis allowance of Brokerage Expenses - Deduction u/s 22 while computing annual value of Property u/s 24 - held that - in computing the income from house property only deduction as permissible u/s 24 of the Act are to be considered and no deduction is allowable therein for payment of brokerage charges - Decided in favor of revenue. Disallowance of business loss - held that - facts on record as per the audited financial statements of the assessee for the relevant period, clearly established with irrefutable evidence that the assessee had commenced its real estate business operations in the relevant period and the expenses incurred for salaries, wages, brokerage, professional fees, rent, registration fees, audit fees, bank charges, etc were genuinely incurred for the bona fide conduct of business operations - expenditure incurred by the assessee, as debited in its profit and loss account and the Schedule s thereto, have been incurred in the normal course of business operations and the resultant business loss of Rs.16,18,288 is to be allowed. The assessee s ground on this issue is allowed. Re-computation of capital gains on transfer of land - AO rejected computation of capital gain as per sale deed - make reference to DVO for fair market valuation of the said land u/s 55A r.w.s.sec 16A of Wealth Tax Act,1957 - assessee do not object to vauation as per DVO report - AO, instead of adopting the valuation of land as per the DVO s report, recomputed capital gains by making a mark up of 40% on sale consideration of Rs.1,46,47,100(as per DVO), as per the Journal Publication of Estimated Market Value of Immovable Properties & Buildings for Registration Bangalore (Urban) District as it was a commercial property - held that - Action of AO to add a sum of Rs.58,58,840 to the valuation of the said land as per DVO s report on account of 40% for commercial property and then proceeded to compute the capital gains was without any basis on facts or the provisions of law and argued that the capital gains ought to computed as done by the assessee and adopting the estimated value of the land at Rs.1,46,47,090 as per the DVO s report - This action of AO and CIT(A) s sustenance of this are, in our considered opinion, erroneous and contrary to the requirements laid down in the provisions of section 55A of the Act r.w.s. 16A(6) of the Wealth Tax Act, 1957 - direct the AO to recompute the capital gains arising to the assessee on account of sale of the said land to M/s. Bagadia Estate Developers Pvt Ltd taking the sale price of the property at Rs.1,46,47,090 as estimated by the DVO in his report dt.24.12.2010. It is ordered accordingly.

Summary

Issues Involved:
1. Disallowance of brokerage charges in computing income from house property.
2. Disallowance of business losses claimed.
3. Recalculation of capital gains by increasing the sale consideration of land.
4. Liability to pay interest under sections 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Brokerage Charges:
The assessee contended that brokerage charges should be deducted as a prior charge while computing the annual value of the property under section 22 of the Income Tax Act. However, the Tribunal referred to a coordinate bench decision in the case of Equity Financial Services Pvt Ltd Vs. ACIT, which held that only deductions permissible under section 24 of the Act are to be considered in computing income from house property. Consequently, the Tribunal dismissed the ground raised by the assessee, confirming that no deduction for brokerage charges is allowable.

2. Disallowance of Business Losses Claimed:
The assessee argued that it had commenced its business operations and incurred genuine expenses related to its business, such as salaries, depreciation, and professional charges. The Tribunal examined the audited financial statements, noting that the assessee held land at Gandhi Bazar, which was being developed into a commercial complex, and another land at Hosur. The Tribunal concluded that the assessee had indeed commenced its business operations and the expenses were incurred in the normal course of business. Therefore, the business loss of Rs.16,18,288 claimed by the assessee was allowed.

3. Recalculation of Capital Gains:
The assessee challenged the Assessing Officer's action of increasing the sale consideration of land by 40% over the value determined by the District Valuation Officer (DVO). The Tribunal observed that the Assessing Officer, after referring the matter to the DVO, should have adopted the DVO's valuation of Rs.1,46,47,090 instead of making an arbitrary increase. The Tribunal directed the Assessing Officer to recompute the capital gains based on the DVO's valuation, thereby rejecting the adhoc increase made by the Assessing Officer.

4. Liability to Pay Interest:
The assessee denied liability to pay interest under sections 234B and 234C of the Act. The Tribunal held that the charging of interest under these sections is consequential and mandatory, leaving no discretion to the Assessing Officer. However, the Tribunal directed the Assessing Officer to recompute the interest while giving effect to its order.

Conclusion:
The Tribunal partly allowed the appeal, confirming the disallowance of brokerage charges and the mandatory nature of interest under sections 234B and 234C, but allowed the business loss claimed by the assessee and directed the recomputation of capital gains based on the DVO's valuation.