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TMI Blog2018 (12) TMI 1870X X X X Extracts X X X X X X X X Extracts X X X X ..... d facts, therefore, we set aside the finding of the CIT(A) on this issue and delete the addition raised on account of u/s 14A r.w. Rule 8D of the Act. Accordingly, this issue is decided in favour of the assessee against the revenue. Addition under the head of income from house property - deemed income from unsold unit/ flat which was closing stock of the appellant as per provisions of Sections 22 and 23 - HELD THAT:- In view of the law relied upon the law representative of the assessee i.e. M/s. Runwal Constructions Vs. ACIT and M/s. C.R. Developments P. Ltd. Vs. JCIT [ 2015 (5) TMI 1161 - ITAT MUMBAI] , we are of the view that the finding of the CIT(A) on this issue is wrong against law and facts whereas the case of the assessee has duly been covered by the law mentioned above, therefore, by honoring the orders mentioned above. We deleted the addition raised by assessee on account of notional income of vacant flats. Accordingly, this issue is decided in favour of the assessee against the revenue. Addition to net profit as on profit and loss account while computing book profit u/s 115JB being disallowed u/s 14A r.w. Rule 8D - HELD THAT:- As relying on L T FINANCE LIMITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is a private limited company, deriving income from Hotel Business and Construction. The company is running a five star hotel in the name and style of The Carlton at Kodaikannal, Tamil Nadu, having rooms and other facilities. The assessee also derived income from dividend, share of profit from partnership firm and profit from sale of flats. The assessee also showed the income from house property, profit and gains of business. The company was also claimed deduction u/s 80IB of the Act. On verification, it was found that the assessee earned the dividend income to the tune of ₹ 36,23,782/- and share of profit from partnership firm of ₹ 1,40,307/- which was claimed exempt u/s 10 of the Act. The AO applied the provision of Section 14A r.w. Rule 8D of the Act and assessed the expenditure to earn the exempt income to the tune of ₹ 20,06,815/-. The AO also assessed the annual letting value of finished property held in stock to the tune of ₹ 13,22,99,044/-. The deduction u/s 80IB(10) of the Act was also restricted to the business income and the income of the assessee was assessed to the tune of ₹ 16,20,42,270/- and book profit u/s 115JB of the Act was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els Pvt. Ltd. Vs. ACIT dated 04.02.2016 has held in para no. 8 as under: - 8. We have considered the submissions of the parties and perused the material available on record. Undisputedly, the issue relating to disallowance of expenditure u/s 14A r/w Rule 8D, was subject matter of dispute in assessment year 2009-10. The co-ordinate bench of the Tribunal while considering the issue in assessee s own case for the said assessment year in ITA. No.857/M/2013 dated 17.11.2014 held as under.: - 3.1 As regards the claim qua disallowance of interest expenditure, the argument of sufficient capital, so that the same must be presumed as having been applied toward investments yielding tax exempt income, misses the point completely. The matter has to http://www.itatonline.org 3 ITA No. 857/Mum/2013 (A.Y. 2009-10) Ferani Hotels Pvt. Ltd. vs. Asst. CIT be decided on the basis of facts and not presumptions. Until and unless therefore it is shown and, again, with reference to the assessee s accounts, that the investments have been financed from own capital, so that no part of the borrowed capital has been utilized for the purpose, no such presumption would hold, and the rule of apportionmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atable thereto would necessarily have to be consider as expended toward the same. Upon this being conveyed by the Bench during hearing, the ld. Authorized Representative (AR), the assessee s counsel, would submit that the borrowed capital in the instant case is in fact wholly for business purposes, being toward the assessee s hotel project at Kodaikanal and the real estate business at Mumbai. We observe no findings in the matter on record. So, however, if, as claimed, the borrowed capital is in the form of dedicated funds, i.e., specified activities and/or assets, so that the same stands utilized for the same purpose/s, and which would be where the terms and conditions of the borrowing have been met, there could be no presumption with regard to the borrowed funds having been used for any purpose other than the same and, accordingly, no part of the interest could be considered as having not been utilized for business purposes and, hence, toward financing the investment/s. The presumption of proportionate funding, on which the formula prescribed u/r. 8D(2)(ii) is premised, would not obtain in that case. This represents the finding by the tribunal in several cases, applying Godrej B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned cases. No disallowance u/s 14A r.w. Rule 8D of the Act is required in the present case, therefore, we are of the view that the finding of the CIT(A) is wrong against law and facts, therefore, we set aside the finding of the CIT(A) on this issue and delete the addition raised on account of u/s 14A r.w. Rule 8D of the Act. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.2 6. Under this issue the assessee has challenged the confirmation of the addition of ₹ 13,22,90,044/- under the head of income from house property on account of deemed income from unsold unit/ flat which was closing stock of the appellant as per provisions of Sections 22 and 23 of the Act. At the very outset, the Ld. Representative of the assessee has argued that the assessee is deriving its income from hotel business and construction. The assessee was also deriving income from dividend, share of profit and sale of flats and due to the recession, the assessee failed to sold out all the flats, therefore, some flats remain vacant which was being treated as stock in trade. The AO has wrongly assessed the notional rent and assessed the rent in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income received from any property in the construction business can be claimed under the head income from property even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under: - 8. True it is, that income derived from the property would always be termed as 'income' from the property, but if the property is used as 'stock-in-trade', then the said property would become or partake the character of the stock, and any income derived from the stock, would be 'income' from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the 'business' and the business stocks, which may include movable an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property. 5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon ble Supreme Court in the case of M/s Chennai Properties Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4-2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Hon ble Supreme Court held that since the assessee company s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s.23 which is assessee s stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s.23 of the I.T.Act. 8. In the factual position of the present case is quite simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2014 361 ITR 505] PCIT Vs. Bhushan Steel Ltd. [ITA 593/2015 dated 29/09/2015], took the view favorable to the assessee in terms of ratio of decision of Hon'ble Supreme Court rendered in CIT Vs. Vegetable Products Limited [1973 88 ITR 192]. The decision in PCIT Vs. Bhushan Steel Ltd., in turn, placed reliance on the decision of Hon'ble Supreme Court rendered in Apollo Tyres Ltd. Vs. CIT [255 ITR 273] which held that the Assessing Officer did not have the jurisdiction to go behind the net profit shown in the Profit Loss Account except to the extent provided in Explanation to Section 115J. Similar view has been expressed by our jurisdictional Bombay High Court rendered in CIT Vs. JSW Energy Limited [2015 60 Taxmann.com 303], CIT v. Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] CIT Vs. Bengal Finance Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015]. Therefore, respectfully following the catena of judgment in assessee's favour, we, at the outset, hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB. Resultantly, Ground No. 6 stands allowed. 10. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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