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2016 (6) TMI 206 - AT - Income TaxPartial denial of deduction under section 80-IB(7A) - Leave and Licence Agreement entered - Held that - In the facts of the present case, the assessee had entered into a Leave and Licence Agreement with Pantaloon Retail (India) Ltd. on 01.03.2008, copy of which is placed at pages 80 to 93 of the Paper Book. As per the Leave and Licence Agreement, the assessee acknowledged to have constructed a shopping mall on the land owned by it and the same was agreed to be leased out to the lessee for running retail outlet under the name and style of Big Bazaar. The terms of the lease were agreed upon between the parties and the assessee Lessor received lease money from the said party. In addition to the said lease agreement, an asset usage agreement was executed between the parties on 01.03.2008 itself, under which it was agreed that in addition to the lease money received per month, the assessee was to received usage right of ₹ 4,20,000/- per month. The obligation of assets owner was to install and handover the assets to Pantaloon on which it was also to provide the insurance. Further, it was agreed that the owner shall install the nominal upgrades as required by Pantaloon at Pantaloon s cost. Further, Pantaloon had undertaken the operation and maintenance of the said assets and also exercised the usage rights in terms of usage guidelines. Further, it was agreed that Pantaloon shall promptly inform the owner any damage caused to the assets We are of the view that where the assessee has build and constructed an area with specifications of lessee, who in turn, is to occupy the same for carrying out commercial activities and further, where the assessee has provided certain other facilities as required by the lessee, then it is the case of commercial exploitation of assets by the assessee and such income is assessable as business income in the hands of assessee. It is not the case of mere letting out of asset owned by the assessee, income from which, is assessable under the head Income from property . It may be kept in mind that the assessee had developed his project for a multiplex theatre, where the basic requirement is not only building, owning and running the cinema but also commercial establishments along with it. Merely because those commercial areas are exploited by leasing out the same to the third party does not mean that the assessee has not commercially exploited the same. In the totality of the above said facts and circumstances, we hold that where the assessee has fulfilled the conditions of building owning and running the requisite number of cinema theatres and commercial shops by way of leasing the same through an integrated activity of leasing not only the premises but also other facilities for which it has received remuneration over and above lease charges, we hold that the assessee having fulfilled the conditions laid down in section 80IB(7A) of the Act read with Rule 18DB of the Rules, the assessee is entitled to claim the deduction under section 80IB(1) of the Act. The CIT(A) has already allowed the deduction under section 80IB of the Act against the running of multiplex cinemas, but the definition of multiplex theatre includes both the activities of running multiplex cinemas and commercial shops. In the absence of either, the assessee is not entitled to claim the deduction under section 80IB of the Act. Merely because the assessee has prepared two separate Profit & Loss Accounts for each of the activity and had later filed consolidated financial statements for the two activities does not distinguish the title of the assessee from claim made by it under section 80IB(1) of the Act. Accordi ngly, we direct the Assessing Officer to allow the claim of assessee. - Decided in favour of assessee Disallowance of cost of improvement on sale of plots which was declared as short term capital gains - Held that - In the entirety of the above said facts and circumstances, in case expenditure has been incurred by the assessee may be in cash, which in turn, is recorded in the books of account of assessee, then there is some merit in the claim of assessee. Further, the assessee during the course of appellate proceedings has furnished confirmation by way of additional evidence which has not been admitted as these were not filed before the Assessing Officer. Thus we direct the assessee to furnish necessary details and also establish its case by way of entries in the books of account before the Assessing Officer, who shall afford reasonable opportunity of hearing to the assessee and look into the merits of claim of assessee. It may be clarified here that the Assessing Officer in the first round had already allowed 25% as allowable in the hands of assessee and the CIT(A) has further allowed ₹ 3,91,755/-, against which the Revenue is not in appeal. Hence, the same stands explained and allowed in the hands of assessee. In respect of balance, the Assessing Officer shall decide after affording reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Revaluation of closing stock by the assessee - Held that - The perusal of Balance Sheet of Adinath Developers at page 22 of the Paper Book does not reflect any closing stock, but work-in-progress, cash in hand and negative capital account of proprietor had been declared in the Balance Sheet as on 31.03.2009. The plea of the assessee before us was that the work-in-progress is the cost of flats and the same has been re-worked. The opening work-inprogress was ₹ 26,95,000/- and closing work-in-progress was ₹ 3,95,000/- and the assessee had booked business loss of ₹ 23 lakhs. In the entirety of the above said facts and circumstances, where the assessee had exercised the option to rework its business assets, then the said loss is business loss and not capital loss. The assessee has sold the said flats in the succeeding year for sum of ₹ 6,50,000/-. The revaluation is on the basis of scientific method i.e. the report of valuer and the loss booked by the assessee is allowable as business loss in the hands of assessee - Decided in favour of assessee
Issues Involved:
1. Treatment of rental income from Big Bazaar as 'Income from house property' vs. 'Income from building, owning & operating a multiplex theatre' under section 80-IB(7A) of the Income-tax Act, 1961. 2. Restriction of deduction under section 80-IB(7A) of the Act. 3. Non-allowance of expenses including depreciation on car and machinery while calculating deduction under section 80-IB(7A). 4. Disallowance of cost of improvement in respect of short-term capital gains on sale of plots. 5. Treatment of loss on reduction in realizable value of closing stock as 'Capital Loss' vs. 'Business Loss'. 6. Failure of the Assessing Officer (AO) to take into account the loss as per the Profit & Loss account. Issue-wise Detailed Analysis: 1. Treatment of Rental Income: The assessee claimed that rental income from Big Bazaar should be treated as 'Income from building, owning & operating a multiplex theatre' under section 80-IB(7A). The Assessing Officer (AO) treated it as 'Income from house property', disallowing various expenses claimed by the assessee. The CIT(A) upheld the AO's decision, stating that the building was not solely for multiplex use and the assessee failed to comply with Rule 18DB, particularly not filing the audit report in Form No.10CCBA timely. The Tribunal held that the assessee fulfilled the conditions of building, owning, and running the requisite number of cinema theatres and commercial shops, and thus, the rental income should be treated as part of the multiplex business, allowing the deduction under section 80-IB(7A). 2. Restriction of Deduction under Section 80-IB(7A): The AO restricted the deduction to ?31,09,491 based on the profit from the multiplex, excluding the rental income from Big Bazaar. The CIT(A) agreed with the AO, stating that the deduction should only be allowed on the income from the multiplex. The Tribunal, however, allowed the deduction on the entire income, including the rental income, as the multiplex theatre definition includes both cinema theatres and commercial shops. 3. Non-allowance of Expenses: The CIT(A) did not allow certain expenses, including depreciation on cars and machinery, while calculating the deduction under section 80-IB(7A). The Tribunal dismissed this ground as it was an alternative to the main issue of treating rental income as part of the multiplex business. 4. Disallowance of Cost of Improvement: The AO disallowed 75% of the development expenses claimed by the assessee on the sale of plots due to lack of proper verification. The CIT(A) allowed partial relief but upheld most of the disallowance. The Tribunal directed the AO to re-examine the evidence provided by the assessee and allow the claim if substantiated. 5. Treatment of Loss on Reduction in Realizable Value of Closing Stock: The AO treated the loss on revaluation of closing stock as a capital loss. The CIT(A) upheld this view. The Tribunal, however, held that the revaluation based on a registered valuer's report should be treated as a business loss, allowing the assessee's claim. 6. Failure to Account for Loss in Profit & Loss Account: The assessee claimed that the AO failed to account for the loss as per the Profit & Loss account. This ground was not pressed by the assessee and was dismissed as not pressed. Conclusion: The Tribunal allowed the appeal partly, directing the AO to treat the rental income as part of the multiplex business, allow the deduction under section 80-IB(7A) on the entire income, and re-examine the evidence for the cost of improvement claim. The Tribunal also allowed the treatment of the revaluation loss as a business loss. The stay application filed by the assessee was dismissed.
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