2014 (4) TMI 26 - AT - Income Tax

Tribunal upholds CIT (A) decisions, Revenue's appeal dismissed. Order pronounced on 5th March 2014.

The Tribunal upheld the CIT (A)'s decisions on all three issues, dismissing the Revenue's grounds of appeal. The appeal was rejected, and the order was ... Deletion of disallowance on account of Internal Development Expenditure – Held that:- The AO had disallowed the claimed expenditure with this observation that out of the total development expenditure incurred on internal development, expenditure on the maintenance, billing services could not be treated as expenses for construction and development – Relying upon assessee’s own case for the previous assessment year, the addition made by the AO on account of disallowance of internal development expenditure is set aside and the amount is allowed to be debited to work in progress account - the order of the first appellate is comprehensive and reasoned – thus, there is no reason to interfere in the findings of the CIT(A) – decided against Revenue. Deletion made of reclassification of income from house property – Held that:- CIT(A) was of the view that the income received from the properties owned by the appellant and shown in the balance sheet as income from house property - there was no dispute on the fact that the assessee is owner of all the properties and that the rental income was derived from such properties and section 22 of the I.T. Act does not say anywhere that property should be held as investments as the basis of assessing the income from other sources – Relying upon assessee’s own case, the CIT (A) has rightly decided the issue in favour of the assessee with direction to treat the income from such properties as income from house property and to allow deduction u/s 24(a) of the Act – the order of the CIT(A) upheld – Decided against Revenue. Deletion on account of notional rental income vacant/leased properties – Held that:- CIT(A) followed M/s DLF Office Developers vs. ACIT [2008 (4) TMI 530 - ITAT DELHI ] - where there was an intention to let out the house property and assessee took steps to let it but could not get suitable tenant, in such cases the annual value have to be worked out u/s 23(1)(c) of the IT Act and according to this clause if the actual rent received/ receivable during the year is Nil then that has to be taken as annual value of the property in order to compute the income from property - in case of the assessee where the property remained vacant then the ALV of such property will be Nil - the notional addition made by the AO under the head 'income from house property' on account of notional income u/s 23(1)(a) of the Income Tax Act is deleted – Decided against Revenue. Issues Involved:1. Deletion of disallowance on account of Internal Development Expenditure.2. Deletion of addition on account of reclassification of income from house property.3. Deletion of addition on account of notional rental income for vacant/leased properties.Issue-wise Detailed Analysis:1. Deletion of Disallowance on Account of Internal Development Expenditure:The Assessing Officer disallowed Rs. 15,05,000/- for internal development expenditure, contending it was not claimed in the profit and loss account but included in the work-in-progress. The assessee argued that the expenditure was genuinely incurred for security charges, conversion charges, and road work. The Commissioner of Income Tax (Appeals) [CIT (A)] deleted the disallowance, referencing the Tribunal's decisions for previous years (1994-95, 2000-01, 2002-03, and 2004-05) under similar circumstances. The Tribunal upheld the CIT (A)'s decision, noting that the method of accounting followed by the assessee was consistent and had been accepted in previous years. The Tribunal found no change in the facts and upheld the deletion of the disallowance.2. Deletion of Addition on Account of Reclassification of Income from House Property:The Assessing Officer added Rs. 4,51,86,148/- by reclassifying income from house property to income from other sources, thereby disallowing the standard deduction of 30% claimed under section 24(a) of the Income Tax Act. The CIT (A) deleted the addition, referencing the Tribunal's decisions for assessment years 1996-97 and 2001-02, and CIT (A)'s own decisions for 2006-07, 2007-08, and 2008-09. The Tribunal upheld the CIT (A)'s decision, agreeing that the properties were owned by the assessee and the rental income derived from these properties should be classified as income from house property, allowing the standard deduction under section 24(a).3. Deletion of Addition on Account of Notional Rental Income for Vacant/Leased Properties:The Assessing Officer added Rs. 3,02,61,251/- as notional rent for vacant properties under section 23(1)(a) of the Income Tax Act. The CIT (A) deleted the addition, referencing the Tribunal's decision in the assessee's group concern (M/s DLF Office Developers vs. ACIT) and CIT (A)'s own decisions for 2006-07, 2007-08, and 2008-09. The Tribunal upheld the CIT (A)'s decision, noting that if a property remained vacant despite efforts to let it out, the annual value should be considered nil under section 23(1)(c). The Tribunal found no evidence of underhand rent and concluded that the notional rent addition was unjustified.Conclusion:The Tribunal upheld the CIT (A)'s decisions on all three issues, rejecting the Revenue's grounds of appeal. The appeal was dismissed, and the order was pronounced in the open court on 5th March 2014.