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TMI Blog2021 (11) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... ned and therein assessed under the head House Property ? - HELD THAT:- As decided in M/S OSHO DEVELOPERS OSHO VERSUS ACIT-32, MUMBAI [ 2020 (11) TMI 218 - ITAT MUMBAI] Tribunal had directed the A.O to delete the addition made by him towards the ALV of the flats that were held by the assessee as stock- in-trade of its business as that of a builder and developer. -Thus we vacate the addition towards notional lettable value made by the A.O under the head House Property . The Ground of appeal no.2 is accordingly allowed. Correct head of income - income earned from letting out of buildings/developed spaces in Industrial Park/SEZ - HELD THAT:- Admittedly, the CBDT vide its Circular No. 16/2017 dated 25.04.2017 had after referring to certain judicial pronouncements observed, that the income from the Industrial Parks/SEZ established under various schemes framed and notified under section 80IA(4)(iii) of the Income Tax Act, 1961 is to be treated as the assessee s income from business, provided the conditions prescribed under the schemes are met. As the aforesaid CBDT Circular No. 16/2017 (supra) was issued subsequent to the filing of the revised return of income by the assessee on 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absence of any shift qua the facts attending to the assessee s claim for deduction of commission/brokerage expenses during the year under consideration, as in comparison to the preceding and succeeding years, there was no justification on the part of the lower authorities in declining its claim for deduction of the said expenditure during the year under consideration. - ITA No.7109/Mum/2018 And ITA No.3862/Mum/2019 And ITA No.4085/Mum/2019 - - - Dated:- 25-10-2021 - Shri S. Rifaur Rahman, Accountant Member And Shri Ravish Sood, Judicial Member For the Appellant : Shri. Madhur Aggrawal (AR) For the Revenue : Shri. Shiddaramappa (DR) ORDER PER RAVISH SOOD, J.M : The captioned appeal/cross-appeals are directed against the respective orders passed by the Commissioner of Income-Tax (Appeals),Mumbai [for short CIT(A) ], which in turn arises from the respective orders passed by the Assessing Officer [for short A.O ] under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the Act ], dated 26.03.2015 for the Assessment Year 2012-13 AND under section 143(3), dated 12.10.2017 for Assessment Year 2015-16. As certain common issues are inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s 14A of the IT Act to the extent of exempt income received by the assessee during the year under relying upon the decision of the Hon ble P H High Court whereas in the said decision it has been held that Rule 8D is not applicable to the stock-in-trade earning exempt income. 3. Whether, on the facts and circumstances of the case and in law, Id the CIT(A), was justified in directing the AO to restrict the disallowance u/s 14A of the IT Act to 9 80,874 instead of ₹ 13,46,65,720 relying upon the decision in the case of Reliance utilities and HDFC Bank even when the assessee could not submit the fund flow so as to establish as to how the investments have been made from the own surplus funds because the assessee has also made investments in various assets out of its available funds. 4. On the facts and under the circumstances of the case and in Law, the Ld. CIT(A) erred in restricting the disallowance u/s 14A of the Income Tax Act,1961 thereby overlooking the computational procedure laid down in Rule 8D of the I T Rules,1962 which has to be necessarily followed whenever a disallowance u/s 14A was to be made ? 5. On the facts and under the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to show cause as to why the disallowance may not be accordingly worked out. In reply, the assessee vide its letter dated 03.10.2017 tried to impress upon the A.O that the disallowance offered under section 14A was in order. However, the A.O did not find favor with the aforesaid explanation of the assessee and computed the disallowance under section 14A r.w Rule 8D at an amount of ₹ 11,21,54,888/-. As the assessee had voluntarily disallowed an amount of ₹ 4,85,50,063/- under section 14A of the Act, therefore, the A.O restricted the additional disallowance to an amount of ₹ 6,36,04,825/- [₹ 11,21,54,888 (-) ₹ 4,85,50,063/-]. 4. Also, it was observed by the A.O that the assessee during the year was holding unsold stock of flats/shops as stock-in-trade of its business. Relying on the judgment of the Hon ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance Leasing Co. Ltd. (2013) 354 ITR 180 (Del), the A.O called upon the assessee to explain as to why Annual Lettable Value (ALV) of the aforesaid properties may not be determined as per Sec. 22 of the Act under the head House Property . As the reply filed by the assessee did not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nouncements. It was further submitted by the ld. A.R that the assessee had raised an additional ground of appeal which pertained to assessing of the lease rental income earned by the assessee company under the head Income from Business Profession , and not under the head Income from House Property . It was submitted by ld. A.R that after the filing of the revised return of income by the assessee company, the CBDT vide its Circular No. 16 of 2017, dated 25.04.2017 had clarified that the entire income earned by an assessee from letting out of building/developed space in an Industrial Park/SEZ is to be treated as business income. It was, thus, submitted by ld. A.R that the present additional ground of appeal has been filed only pursuant to the aforesaid CBDT Circular No. 16 of 2017 (supra). It was further averred by the ld. A.R that the adjudication of the issue in hand was based on the facts available on record and no new material was required to be looked into. It was submitted by the ld. A.R that the aforementioned additional ground of appeal may be admitted and necessary directions be issued to the A.O to assess the lease rental income of the assessee as per the CBDT Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that a similar view had thereafter been taken by the Hon ble High Court of Bombay in the case of M/s Nirved Traders Pvt. Ltd. Vs. DCIT, Circle-1(2), Mumbai in ITA No. 149/2017 dated 23.04.2019. In its aforesaid order, the Hon ble High Court after exhaustive deliberations observed that the disallowance under section 14A was liable to be restricted to the extent of the exempt dividend income of ₹ 1,13,72,545/- that was earned by the assessee during the year. The Hon ble High Court while concluding as herein above had set-aside the view taken by the lower authorities which had worked out the disallowance under section 14A r.w Rule 8D at ₹ 4,22,72,425/-. Accordingly, in the backdrop of our aforesaid deliberations, we are of the considered view that the disallowance under section 14A in the case of the assessee before us, as claimed by the ld. A.R, and rightly so, is liable to be restricted only to the extent of the exempt dividend income of ₹ 1,43,78,946/- that was earned by it during the year under consideration. WE, thus, in terms of our aforesaid observations direct the A.O to restrict the disallowance u/s 14A to an amount of ₹ 1,43,78,946/- i.e the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as stock-in-trade was liable to be determined and therein brought to tax under the head house property . As is discernible from the assessment order, the A.O by relying on the order of the Hon ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), had determined the ALV of the flats which were held by the assessee as part of the stock-in-trade of its business of a builder and developer, and had brought the same to tax under the head house property . On appeal, the CIT(A) had found favour with the view taken by the A.O by drawing support from the order of the Hon ble High Court of Bombay in the case of CIT Vs. Gundecha Builders (2019) 102 CCH 426 (Bom). 8. On a perusal of the order of the Hon ble Jurisdictional High Court in the case of Gundecha Builders (supra), we find, that the issue before the High Court was that where an assessee, a real estate developer, was in receipt of rental income from a property held as stock-in-trade of its business as that of a real estate developer, then, whether the said receipts were to be brought to tax under the head house property (as claimed by the assessee) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court being of the view that the levy of income tax in the case of an assessee holding house property was premised not on whether the assessee carries on business, as landlord, but on the ownership, thus, turned down the aforesaid claim of the assessee. To sum up, in the backdrop of its conviction that the incidence of charge under the head house property was based on the factum of ownership of property, the High Court was of the view that as the capacity of being an owner was not diminished one whit, because the assessee carried on the business of developing, building and selling flats in housing estates, therefore, the ALV of the flats held as stock-in-trade by the assessee in its business of a builder and developer was liable to be determined and brought to tax under the head house property . But then, we find, that taking a contrary view the Hon ble High Court of Gujarat had way back in the case of CIT vs. Neha Builders (2008) 296 ITR 661 (Guj), observed, that rental income derived by an assessee from the property which was treated as stock-in-trade is assessable as business income and cannot be assessed under the head Income from house property . The High Court whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is not yielding any rental income to the assessee, as it has not been let-out. It is also not in dispute that the project in question has been completed during the year under consideration, and the said flat is shown as stock-in-trade at the end of the year. At the time of hearing, the learned representative also pointed out that the flat has been ultimately sold on 06.11.2012. We find that our coordinate Bench in the case of C.R. Developments Pvt. Ltd. (supra) dealt with charging of notional income under the head 'Income from House Property' in respect of unsold shops which were shown by assessee therein as part of 'stock-in-trade'. As per the Tribunal 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 Shri Rajendra Godshalwar 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purely as stock-in-trade; and, what the Assessing Officer has tried to do is to assess only a notional income thereof. Thus, the ratio of the judgment of the Hon'ble Bombay High Court in the case of Sane Doshi Enterprises (supra) has been rendered in the context of qualitatively different facts, and is not applicable in the present case. Accordingly, preferring the view taken by the Hon ble High Court of Gujarat in CIT vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj), as per which the ALV of the unsold property held by an assessee as stock-in-trade could not be determined and brought to tax under the head house property , as against that arrived at by the Hon ble High Court of Delhi holding to the contrary in CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del); and also following the order of ITAT, Mumbai in Shri. Rajendra Godshalwar Vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31.01.2019], we herein conclude that the ALV of flats held by the assessee as part of the stock-in-trade of its business as that of a builder and developer could not have been determined and therein brought to tax under the head house property . 10. Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken as stock-in-trade, is not merited in the instant case. Thus, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition. 11. We, thus, in the backdrop of our aforesaid deliberations not being able to concur with the view taken by the lower authorities, therein, set aside the order of the CIT(A) and direct the A.O to delete the addition made by him towards the ALV of the flats held by the assessee as stock-in-trade of its business as that of a builder and developer. The Grounds of appeal Nos. 1 to 4 are allowed in terms of our aforesaid observations. 10. As the facts and the issue involved in the case before us i.e assessing of the ALV of the Flats/shops held by the assessee as stock-in-trade of its business as that of a builder and developer remains the same as were involved in the aforesaid case, therefore, we, respectfully follow the view therein taken by the Tribunal and vacate the addition towards notional lettable value of ₹ 2,09,73,057/- made by the A.O under the head House Property . The Ground of appeal no.2 is accordingly allowed. 11. We shall now advert to the additional ground of appeal raised by the assessee before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the aforesaid claim of the assessee in the backdrop of the aforementioned Circular No. 16/2017 (supra). At this stage, we may herein clarify that we are refraining from commenting on the satisfaction by the assessee of the eligibility criteria as stated in the aforesaid CBDT circular No. 16/2017 (supra), which the A.O shall remain at a liberty to look into in the course of the set-aside proceedings. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee. The additional ground of appeal is allowed for statistical purpose in terms of our aforesaid observations. ITA No. 4085/Mum/2019 AY-2015-16 (Revenues Appeal) 13. In so far the Grounds of appeal nos. 1 to 5 raised by the Revenue before us are concerned, as we have restricted the disallowance under section 14A up to the extent of the exempt dividend income of ₹ 1,43,78,956/- earned by the assessee during the year under consideration, therefore, no separate adjudication on the issues therein raised would be required. Resultantly, the Grounds of appeal nos. 1 to 5 are disposed off in terms of our aforesaid observations. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see submitted the requisite details with the A.O, which revealed that the aforesaid amount was paid to two companies, viz. (1) M/s Cushman and Wakefield (India) Pvt. Ltd. (C W) : ₹ 1,02,49,000/-; and (2) M/s. Jones-Lang Lasalle Property Consultancy (India) Pvt. Ltd. (LLPC): ₹ 31,40,855/-. It was observed by the A.O, that the commission/brokerage was paid to the aforementioned companies for leasing of premises from which the assessee was earning rental income. Backed by the aforesaid fact, the A.O was of the view that the assessee had claimed deduction of commission/brokerage expenses which were incurred for the purpose of earning house property income and not business income. It was, thus, observed by the A.O that the commission/brokerage paid by the assessee to the aforementioned companies, viz. C W and LLPC amounting to ₹ 1,33,90,855/- was not allowable as a deduction under section 37(1) of the Act. Accordingly, the A.O disallowed the assessee s claim for deduction of commission/brokerage of ₹ 1,33,90,855/-. 19. On appeal, the CIT(A) observed that the commission/brokerage was paid by the assessee to the aforementioned companies on account of finding ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) had after considering the respective incomes of the assessee company from its activities, viz. (i) earning of maintenance charges (received from tenants) that was offered for tax under the head Income from Business Profession ; and (ii) earning of rental receipts (that was offered under the head House Property ), had on a pro-rata basis apportioned the same on the said basis. Accordingly, the assessee s claim for deduction of commission /brokerage expenses was restricted by the CIT(A) to the extent the same was apportioned and therein attributable to its earning of maintenance charges. At the first blush, the aforesaid view taken by the CIT(A) was found to be logical and correct. However, the very fact that the assessee s claim for deduction of such commission/brokerage expenses had consistently been accepted by the department not only in the preceding years but also in the succeeding years, and that too in the course of scrutiny assessments framed under section 143(3) of the Act therein dislodges our aforesaid conviction. On a perusal of the records, we find that the respective assessments in the case of assessee-company for the preceding/succeeding years had been framed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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