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2022 (3) TMI 246 - AT - Income TaxAssessment of income from construction and sale of residential apartments of Victoria Towers under the head 'business income' - Whether CIT(A) has admitted the additional evidence like Memorandum of Association and aims objects of the company in violation of provisions of Rule 46A of the Income Tax Rules, 1962? - HELD THAT - We noted that the CIT(A) has gone through the provisions of section 23 of the Act and noted that while determining the ALV of the assets held as stock-in-trade, the provisions of section 23 will not apply because assessee is engaged in the business of real estate and further having treated the said asset as 'stock-in-trade'. We noted that the proviso added to section 23(5) of the Act, as introduced by Finance Act, 2017 w.e.f. 01.04.2018, wherein the scope of applying annual letting value has been extended to stock-in-trade and according to us, this is a prospective amendment and being a prospective amendment, the same would further fortify the plea of the assessee on the non-applicability of provisions relating to ALV to the unsold apartments kept by assessee as stock-in-trade during the assessment year under consideration i.e., 2012-13. Further, we are in agreement with the arguments of ld. Senior DR that the CIT(A) has no power to set aside the assessment but he has referred back the issue for limited purpose of verification of Memorandum of Association and Article of Association i.e., aims and objects of the assessee company. With regard to the ground raised by Revenue on violation of Rule 46A of the Rules, we are of the view that these are vital documents and CIT(A) after admitting those and going through the same has held the income derived from unsold stock kept as stock- in-trade as 'business income'. We find no infirmity in directing the AO to verify these documents. Hence, these issues raised in regard to income assessed on account of residential apartment of unsold stock in the project of 'Victoria Towers', of the Revenue's appeal is dismissed. Assessment of notional ALV of shopping mall i.e., Coromandal Plaza - disallowance of depreciation - HELD THAT - We are of the view that once the income of shopping mall Coromandal Plaza is assessed as business income, the consequential expenses and depreciation relating to the operation of shopping mall is to be allowed. But the AO will verify and also go into the genuineness of expenses and then will decide the issue. Hence, this issue is set aside to the file of the AO.
Issues Involved:
1. Treatment of rental receipts from letting out property as business income or income from house property. 2. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962. 3. Condonation of delay in filing the appeal. 4. Assessment of income from construction and sale of residential apartments under the head 'business income'. 5. Allowance of depreciation and other expenses related to the operation of a shopping mall. Detailed Analysis: Issue 1: Treatment of Rental Receipts The Hon'ble High Court remanded the matter to the Tribunal for a fresh consideration of whether rental receipts should be treated as business income or income from house property. The Tribunal noted that the CIT(A) had directed the AO to verify the Memorandum of Association and main objects of the assessee company in accordance with the decision of the Hon'ble Supreme Court in Chennai Properties & Investments Ltd., which held that rental income should be assessed as business income if the main objective of the company is to acquire and hold properties. The Tribunal upheld this approach, dismissing the Revenue's appeal on this issue. Issue 2: Admissibility of Additional Evidence The Revenue argued that the CIT(A) admitted additional evidence, such as the Memorandum of Association, in violation of Rule 46A of the Income Tax Rules, 1962. The Tribunal found that these documents were vital for adjudication and were available in the public domain with the Registrar of Companies. Therefore, the Tribunal found no infirmity in the CIT(A)'s direction to the AO to verify these documents and dismissed the Revenue's appeal on this ground. Issue 3: Condonation of Delay The assessee's appeal was time-barred by 72 days due to the ill health of their Chartered Accountant. The Tribunal found the cause for the delay reasonable and condoned the delay, admitting the appeal. Issue 4: Assessment of Income from Construction and Sale of Residential Apartments The Revenue contested the CIT(A)'s direction to the AO to verify the Memorandum of Association and assess the income from construction and sale of Victoria Towers as business income. The Tribunal noted that the CIT(A) had followed the Supreme Court's decision in Chennai Properties & Investments Ltd. and directed the AO to verify the company's main objects. The Tribunal agreed that the CIT(A) had no power to set aside the assessment but upheld the direction for verification, dismissing the Revenue's appeal on this issue. Issue 5: Allowance of Depreciation and Other Expenses The assessee argued that the CIT(A) failed to adjudicate specific grounds related to the allowance of depreciation on parking facilities and plant and machinery in the shopping complex Coromandal Plaza. The Tribunal agreed that once the income from the shopping mall is assessed as business income, the related expenses and depreciation should be allowed. The Tribunal remanded this issue to the AO for verification and decision on the genuineness of the expenses. Conclusion: The appeal filed by the Revenue and the cross objection filed by the assessee were dismissed. The appeal filed by the assessee was allowed for statistical purposes, with specific issues remanded to the AO for further verification. The order was pronounced on 22nd February 2022 at Chennai.
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