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TMI Blog2016 (6) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) erred on facts and in law in upholding disallowance of cost of improvement to the extent of ₹ 67,02,224 in respect of short term capital gains on sale of plots. 5. The learned Commissioner of Income Tax (Appeals) erred on facts and in law in treating the loss on reduction in realizable value of closing stock, amounting to ₹ 23,00,000 as 'Capital Loss' as against 'Business Loss' claimed by the assessee. He failed to appreciate the nature of the business of the assessee as also the accepted principles of valuation and accounting of closing stocks. 6. The learned Commissioner of Income Tax (Appeals) erred on facts and in law in not dealing with the ground that the A O has failed to take into account the loss as per Profit Loss account (Development activity) while disallowing the loss and Further the rectification application u/s 154 is pending with AO 7. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal. 3. The issue in grounds of appeal 1 and 2 raised by the assessee is against partial denial of deduction under section 80-IB(7A) of the Act. 4. Briefly, in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further pointed out by the learned Authorized Representative for the assessee that the said flats were sold during the financial year 2010-11 for ₹ 6,51,000/- and profit on sale was offered to tax in the relevant year. The assessee further pointed out that the said building was completed in the year 1998 and the market value of the said flats as remained un-sold were reduced after nearly eight years, on the basis of valuation of a registered valuer, who determined the realizable value of the said property. The Assessing Officer noted that the assessee had failed to furnish any proof in support of his contention of developing cracks, rusting of doors and windows, etc. and the submissions of the assessee were of general nature. Further, the Assessing Officer found contradictory statements being made by the assessee that in the first letter, it was stated that the building was constructed in assessment year 2001-02 and in the second submission, it was stated that the building was completed in 1998. However, in the valuation report, the valuer had inspected the property on 17.01.2009 and pointed out the details and further, the said valuation report was of survey and loss assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculated at ₹ 53,03,032/-. Further, the Assessing Officer took note of depreciation chart filed by the assessee and noted that 25% of the assets excluding figures were utilized for Big Bazaar and 75% of assets were used for first floor portion i.e. Multiplex of the building. Consequently, the Assessing Officer re-computed the depreciation to be allowed to the assessee and similarly bank interest and charges were also allowed in the same proportion i.e. 75% against the income from Multiplex. In view thereof, the income from Multiplex was re-casted as per Profit Loss Account under para 6.2 at page 11 of the assessment order. The assessee was held to be entitled for deduction under section 80IB of the Act on the profit of ₹ 62,18,983/- and not on ₹ 1,01,41,664/-. The assessee was held to claim the deduction under section 80IB of the Act at ₹ 31,09,491/- as against ₹ 60,14,733/- claimed by the assessee in the computation of income. The Assessing Officer further held that the assessee was not entitled to claim the deduction on the entire building under section 80IB of the Act since the basement and the ground floor were given on rent to Big Bazaar and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them for Murum filling, leveling and fencing work in order to verify the genuineness of expenses. The statements of two persons were recorded during the course of assessment proceedings. The assessee was asked to produce three persons. However, the assessee could not produce the said three persons and the Assessing Officer noted that the payments were made through cash or bearer cheques and the assessee could not produce the persons and the persons who were produced, had given contradictory statements, hence the assessee was held to have not substantiated its claim of cost of improvement and the same was rejected and only 25% of the expenses were allowed and the income from short term capital gains was re-worked in the hands of assessee. 8. The CIT(A) vide para 6 at page 2 of the appellate order observed that the contention of the assessee that deduction should be allowed on the entire income of Multiplex and the rent from Big Bazaar, was without any basis. The CIT(A) referred to the provisions of section 80IB(7A) of the Act, which allowed deduction in the case of Multiplex Theatre, which is not located in municipal jurisdiction. Further, reference was made to sub-section (14) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of CIT(A). 10. The learned Authorized Representative for the assessee after taking us through the factual aspects of the case, pointed out that this was the fourth year of claim of deduction under section 80IB(7A) of the Act. The learned Authorized Representative for the assessee fairly admitted that in all the earlier years, the said claim was allowed by issuing intimation under section 143(1) of the Act. The grievance of assessee in this regard was that rental income from the commercial shops was assessed under the head Income from property , whereas the assessee claimed the same as Income from multiplex . The learned Authorized Representative for the assessee referred to the provisions of section 80IB(1) of the Act, wherein it is provided that the deduction shall be allowed under the said section on account of any business from sub-section 3 to 11B of the Act. Further, reference was made to sub-section 7A to section 80IB of the Act, wherein it is provided that the deduction would be allowed in respect of building owning and operation of multiplex theatre. As per section 80IB(14)(d)(a) of the Act, multiplex theatre includes shops as may be prescribed. Further, our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on car while calculating deduction under section 80IB(7A) of the Act. Further plea was raised on account of depreciation on machinery such as air-conditioners, etc. against income received from Big Bazaar. 12. The learned Departmental Representative for the Revenue pointed out that when a person is carrying on his business, then he accounts for the risk. However, when the person gives on rent, there is no risk and only revenue sharing. Though the assessee claims to have given various facilities to the lessee, but all these are basic facilities provided to the lessee. The learned Departmental Representative for the Revenue further stated that the assessee himself had made two Profit Loss Accounts, one on account of rental income and the second on account of multiplex income. The learned Departmental Representative for the Revenue further stressed that under section 80IB(7A) of the Act, the assessee should have built up and owned building and further operated the same, which were the key words and where the assessee was not operating its commercial shops, it was not entitled to the claim of deduction under section 80IB(7A) of the Act. The learned Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 31st day of March, 2005; (ii) the business of the multiplex theatre is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of any building or of any machinery or of plant previously used for any purpose; (iii) the assessee furnishes alongwith the return of income, the report of an audit in such form and containing such particulars as may be prescribed83 and duly signed and verified by an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed. ..... 14 (da) multiplex theatre means a building of a prescribed area, comprising of two or more cinema theatres and commercial shops of such size and number and having such other facilities and amenities as may be prescribed. 15. The relevant rules in this regard are 18DB(1) of the Rules, which read as under:- 18DB (1) For the purpose of sub-section (7A) and clause (da) of subsection (14) of section 80-lB, the multiplex theatre shall have the following facilities and amenities :- (a) The total built-up area occupied by all the cinema theat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom initial assessment year, in any place. It is further provided that nothing contained in this clause shall apply to multiplex theatre located at a place within municipal jurisdiction of Chennai, Delhi, Mumbai or Calcutta. As per sub-clause (b) to section 80IB(7A) of the Act, the deduction under clause (a) shall be allowable only if such multiplex theatre is constructed at any time during the time beginning the first day of April, 2002. Further, it is provided that the business of multiplex is not formed by splitting or re-construction of business already in existence or by transfer to a new business, of building or of any machinery or of a plant previously used for any purpose. Under clause (b) (iii), it is further provided that the assessee is obliged to furnish along with return of income, the report of an audit in such form and containing such particulars as may be prescribed and duly signed and verified by an accountant, certifying that the deduction has been correctly claimed. Further, under section 80IB(14) of the Act, the term multiplex theatre is defined under clause (da). It provides that multiplex theatre would mean a building of a prescribed area comprising of two or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shops as prescribed under Rule 18DB of the Rules. Under section 80IB(14)(c) of the Act, initial assessment year in respect of each of the undertaking is specified and vide clause (5), it is provided that in case of multiplex theatre, the initial assessment year will be relevant to the year in which cinema hall being part of multiplex theatre starts operations on a commercial basis. In other words, the Act recognizes the running of cinema hall to be a distinct activity from running of commercial shops. 18. The assessee admittedly, fulfills all the conditions vis- -vis cinema halls i.e. it has three cinema theatres running in the complex and it fulfills all the other conditions, against which the CIT(A) has directed the Assessing Officer to grant the deduction under section 80IB(7A) of the Act. However, no deduction has been granted in respect of commercial shops on the surmise that the said shops are rented out by the assessee and hence, are not commercially exploited by it for the purpose of running its business. The question which arises before us is whether such a view taken by the authorities below is a plausible view. We would again refer to the definition of multiplex thea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fibre satellite connectivity, radio microwave cell phone boosters, restaurants, etc. which were provided to IT companies. The income from licence agreement i.e. software companies to whom the IT Park premises had been let out was claimed to be continuous / systematic activity which was in the nature of complex commercial activity and the assessee claimed that it was assessable as business income. The Tribunal after taking note of various judicial propositions in this regard, held it to be organized commercial activity to be assessed under the head Income from business. The Tribunal in this regard placed reliance on the ratio laid down by several High Courts and with reference to Hon ble Bombay High Court in CIT Vs. Mohiddin Hotels (2006) 284 ITR 229 (Bom), wherein it was held that where the subject matter i.e. let out is not a bare tenement but a complex one with infrastructure facilities, the income derived therefrom, which is not separable from letting out the building shall not be treated as income from house property. 20. Similar proposition has been laid down by Pune Bench of Tribunal in M/s. Mudhol Land Holding Vs. CIT (supra) while deciding the appeal against the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas for the attraction, convenience and comfort of the customers/visitors. In our view, as per the modern day trends of retail business and customer preferences, not only the quantum of rent/income from the multiplex but also the very letting of the premises depends upon the provisions of facilities and amenities provided taking into consideration not only the need and requirements of the business entities/occupants but also the comfort zone of the customers/visitors. The activity of construction of multiplex and cinema theatre, its maintenance and providing amenities and facilities therein, thus can not be said to be mere letting out of the property but in our view is a composite business activity. Merely because income is attached to a property it cannot be a sole factor for assessing such income as income from house property and it has to be seen that whether it was the primary objective of the assessee to exploit the property in a simple manner or to exploit it commercially i.e. to exploit it by way of complex commercial activities to arrive at the generation of income that could be taxed under the head income from house property or as income from business. If it is found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the above equipments; f. Electrical fittings, wiring as per PRIL s specifications; g. Overhead water tanks; h. Cooling system has provided as approved by PRIL. 23. The case of the assessee before us is that all these assets were provided as per specifications of Pantaloon and for their needs. It was further stressed by the learned Authorized Representative for the assessee that in case these assets are not used by Pantaloon, then the same may not be used by the next lessee and it cannot be said that these were the general assets provided to any lessee. The learned Departmental Representative for the Revenue on the other hand, stressed that the assets provided to the lessee were in the usual course which any lessor shall provide in respect of its building. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. While declaring income from short term capital gains, the assessee had declared cost of improvement in respect of plot No.1 at ₹ 65,52,239/- and in respect of plot No.2, at ₹ 29,06,400/-. The assessee claimed that the said amount was spent on purchasing Murum and leveling the land, in respect of which details were furnished before the Assessing Officer i.e. name of person from whom Murum was purchased and also the amounts spent on leveling and fencing. The payments were made through cash / bearer cheques. The Assessing Officer asked the assessee to produce the said persons and two persons were produced. However, the balance three persons were not produced before the Assessing Officer. The Assessing Officer disallowed 75% of development expenses in respect of plot No.1 at ₹ 49,14,179/- and ₹ 21,79,800/- in respect of plot No.2 for want of proper verification. The total disallowance made by the Assessing Officer was ₹ 70,93,979/-. 27. The CIT(A) took note of additional evidence filed by the assessee, but only allowed relief of ₹ 3,91,755/- i.e. payment made to Municipal Corporation. 28. The case of the assessee before us is that necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is thus, allowed for statistical purposes. 31. Now, coming to the last ground of appeal No.5 i.e. in respect of revaluation of closing stock by the assessee. 32. The assessee had re-worked the realizable value of closing stock of certain flats which remained to be unsold and claimed business loss of ₹ 23 lakhs. The case of the assessee before us was that the revaluation of stock was on the basis of report of registered valuer. In respect of certain flats, which could not be sold by the assessee for period of time, the said building was claimed to be constructed in the earlier years and because of lying vacant, certain cracks had appeared in the building and as per the valuer s report dated 17.09.2009, the value of said assets held as closing stock was revalued. Where the assessee is following mercantile system of accounting and is declaring certain assets as its closing stock which is being valued at cost or market price, whichever is less, than the assessee is to declare its assets at a value which is lesser of the two i.e. cost or market value. The learned Authorized Representative for the assessee has drawn our attention to the copy of Balance Sheet filed in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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