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2020 (11) TMI 808 - AT - Income TaxProfit chargeable to tax under section 41 - case was selected for scrutiny under CASS - Reading of the comments of the auditor at clause no. 20 of form no.3CD, being tax audit report, with regards to computation of miscellaneous income - HELD THAT - We notice from the record that the tax auditor has disclosed certain details of information in Clause 20 of tax audit report, but he did not elaborate what those information are.When analyzing those information, it says other deduction (income) and other information rebates and settlement. When we deduct the income and settlement amount, the difference which matches with the Miscellenous income declared by the assessee in its financial statement. When the assessee tries to explain the tax authorities they did not believe and also not verified the same by calling for explanation from the tax auditors. In our considered view that tax authorities should have called for clarification from the tax auditor and completed assessment based on the clarification.The information matches with the submissions of the assessee therefore we are inclined to accept the submissions of the assessee therefore the addition made by the assessing officer is accordingly deleted. Hence, the ground No. 1 raised by the assessee is allowed. Income received from letting out of property - Income from house property and not under the head Income from business - HELD THAT - Even though one of the object of the assessee to give the property developed by them as on lease. But as per the above facts, it is clear that it is only an arrangement between NRPL and assessee to explore the option of finding a large multinational company and construct the commercial property and then transfer the same to NRPL as per the MOU entered with them. By the time, assessee completed the total project and received a considerable sale consideration from NRPL, which clearly indicates that assessee has carried on its main object of construction and giving the IT Park on lease, is only an arrangement and not the main objective of the assessee company. Therefore, relying on the decision of Hon ble Supreme Court in the case of Chennai Properties and Investment Ltd Vrs. CIT 2015 (5) TMI 46 - SUPREME COURT is farfetched and as per this, the income received from letting out of property is the main objective of the above company of which the main objective as per the MOU of the company is to earn the rental income and maintaining the same is the main objective. In the present case, the main objective of the assessee company is only to construct and complete the turnkey projects and letting out the commercial property is only an arrangement with that party(assignor) based on the MOU. Therefore, the rental income earned by the assessee can only be taxed under the head Income from house property and not under the head Income from business . Accordingly, ground no. 2 raised by the assessee is dismissed. Addition u/s 40(a)(ia) - HELD THAT - By relying on the decision of Hon ble Delhi High Court in the case of CIT vs. Rajinder Kumar 2013 (7) TMI 454 - DELHI HIGH COURT , CIT vrs. Ansal Land Mark Township (P) Ltd, 2015 (9) TMI 79 - DELHI HIGH COURT and various case law in this respect and also as per the confirmation received from the company that bank has already declared the income in the return of income, we are of the considered view that section 40(a)(ia) of the Act cannot be invoked in this regard. Accordingly, ground no. 4 raised by the assessee is allowed. Short term capital gain arising on transfer of premises - appellant having transferred the building premises used for business, the consideration for sale would have to be reduced from the block of assets, as provided u/s 43(6) and computation of short term capital gams separately was not correct by law - HELD THAT - Assessee is in the business of construction and it has constructed IT park based on the MOU with NRPL and accordingly, developed the IT park and gave the building on rent to LIPL, therefore we cannot accept the contention of the assessee and moreover, we notice that assessee has completed the construction of building during this assessment year and assessee has collected all the sale consideration based on the stages of completion of milestones of the construction from NRPL, therefore the transfer of right on the land of building is not part of the fixed assets, but it is a commercial transaction of the assessee company. Hence, the sale consideration can only be treated as transfer of lease hold rights in the land and building. Therefore, it will be assessed under the head Income from capital gains and AO has assessed the same by following the provisions of capital gains. Accordingly, ground no. 1 raised by the assessee is dismissed. Applicability of section 50C to the transfer of leasehold rights in a plot of land with structure constructed thereon - AO rejected the contention of the assessee by invoking the provision of section 50C and brought to tax the difference between stamp duty valuation and sale consideration. - assessee was asked as to why the stamp duty valuation cannot be assessed - HELD THAT - Coordinate Bench of ITAT in the case of ACIT vs. Greenfield Hotels and Estates Pvt. Ltd 2013 (10) TMI 1544 - ITAT MUMBAI has passed its order in favour of the assessee by determining that the provision of section 50C are not attracted to transfer of leasehold rights. - Decided in favour of assessee. Non-deduction of TDS on interest paid to Kotak Mahindra Prime - addition u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T Act 1961 towards delayed deposit of ESIC contribution of employees - HELD THAT - Coordinate Bench of ITAT in the case of CIT vs. Rajinder Kumar 2013 (7) TMI 454 - DELHI HIGH COURT and CIT vs. Ghatge Patil Transport Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT respectively, has passed its order in favour of the assessee. Therefore, respectfully following the decision of Coordinate Bench of ITAT, which is applicable mutatis mutandis to the present case - Decided in favour of assessee. Allowable deduction during this assessment year - HELD THAT - Since assessee has not claimed deduction in the AY 2014-15 as prior to that extent and assessee has made the above claim only in the assessment proceedings and as per the judicial proceedings we know that AO cannot allow the above said claim, however the appellate authority can only allow the said claim as per the decision of High Court in the case of CIT vs Pruthvi Brokers Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT
Issues Involved:
1. Addition of ?97,06,497/- under Section 41 of the Income Tax Act, 1961. 2. Classification of rental income as "Income from House Property" versus "Business Income." 3. Disallowance of depreciation on the IT Park premises. 4. Disallowance under Section 40(a)(ia) for non-deduction of TDS. 5. Short-term capital gain on the transfer of premises. 6. Applicability of Section 50C to the transfer of leasehold rights. 7. Addition under Section 36(1)(va) for delayed deposit of ESIC contribution. 8. Deduction for expenses pertaining to the year under appeal but paid in the subsequent year. Detailed Analysis: 1. Addition of ?97,06,497/- under Section 41 of the Income Tax Act, 1961: The assessing officer observed discrepancies in the tax audit report regarding the profit chargeable to tax under Section 41. The auditor disclosed amounts under "Other deduction" and "Rebate and settlement," which were not reflected in the assessee's statement. The assessee explained that the difference was already recognized as miscellaneous income. The tribunal found that the tax authorities should have sought clarification from the tax auditor. The tribunal accepted the assessee's submission and deleted the addition, allowing the ground in favor of the assessee. 2. Classification of Rental Income as "Income from House Property" versus "Business Income": The assessee argued that the rental income from the IT Park should be classified as "Business Income" due to the provision of various amenities and the intention to carry out commercial activities. However, the tribunal found that the main objective of the assessee was to construct and transfer the IT Park to Nisarg Reality Pvt. Ltd. (NRPL) and that the rental arrangement was merely an interim measure. Therefore, the tribunal upheld the classification of the rental income as "Income from House Property" and dismissed the ground. 3. Disallowance of Depreciation on the IT Park Premises: Since the rental income was classified as "Income from House Property," the claim for depreciation was rejected. The tribunal upheld the findings of the CIT(A) and dismissed the ground. 4. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS: The assessee argued that the interest paid to Kotak Mahindra Prime Ltd. was included in the payee's total income, and therefore, disallowance under Section 40(a)(ia) was not justified. The tribunal, relying on judicial precedents, accepted the assessee's submission and allowed the ground. 5. Short-Term Capital Gain on the Transfer of Premises: The assessee claimed that the transfer of the IT Park premises should be treated as a business transaction and the consideration should be reduced from the block of assets. The tribunal found that the transfer was a commercial transaction and not part of the fixed assets. The tribunal upheld the assessment of the transaction under "Income from Capital Gains" and dismissed the ground. 6. Applicability of Section 50C to the Transfer of Leasehold Rights: The assessee argued that Section 50C should not apply to the transfer of leasehold rights. The tribunal, following the decision of the Coordinate Bench of ITAT in a similar case, accepted the assessee's submission and allowed the ground. 7. Addition under Section 36(1)(va) for Delayed Deposit of ESIC Contribution: The tribunal, relying on judicial precedents, accepted the assessee's submission that the ESIC contribution was deposited before the last date of filing the IT return and allowed the ground. 8. Deduction for Expenses Pertaining to the Year Under Appeal but Paid in the Subsequent Year: The assessee claimed expenses incurred in the assessment year but paid in the subsequent year. The tribunal directed the AO to verify the claim and allow the deduction if found correct, allowing the ground for statistical purposes. Conclusion: The appeals filed by the assessee were partly allowed. The tribunal provided detailed reasoning for each issue, considering judicial precedents and the specific facts of the case. The tribunal emphasized the importance of seeking clarifications from auditors and the proper classification of income based on the assessee's main objectives and activities.
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