2016 (6) TMI 206 - AT - Income Tax

Tribunal directs rental income to be considered part of multiplex business & allows deduction under section 80-IB(7A)

Sameer Rajendra Shah Versus The Jt. Commissioner of Income Tax, Range – 1, Sangli

Sameer Rajendra Shah Versus The Jt. Commissioner of Income Tax, Range – 1, Sangli - TMI Issues Involved:1. Treatment of rental income from Big Bazaar as 'Income from house property' vs. 'Income from building, owning & operating a multiplex theatre' under section 80-IB(7A) of the Income-tax Act, 1961.2. Restriction of deduction under section 80-IB(7A) of the Act.3. Non-allowance of expenses including depreciation on car and machinery while calculating deduction under section 80-IB(7A).4. Disallowance of cost of improvement in respect of short-term capital gains on sale of plots.5. Treatment of loss on reduction in realizable value of closing stock as 'Capital Loss' vs. 'Business Loss'.6. Failure of the Assessing Officer (AO) to take into account the loss as per the Profit & Loss account.Issue-wise Detailed Analysis:1. Treatment of Rental Income:The assessee claimed that rental income from Big Bazaar should be treated as 'Income from building, owning & operating a multiplex theatre' under section 80-IB(7A). The Assessing Officer (AO) treated it as 'Income from house property', disallowing various expenses claimed by the assessee. The CIT(A) upheld the AO's decision, stating that the building was not solely for multiplex use and the assessee failed to comply with Rule 18DB, particularly not filing the audit report in Form No.10CCBA timely. The Tribunal held that the assessee fulfilled the conditions of building, owning, and running the requisite number of cinema theatres and commercial shops, and thus, the rental income should be treated as part of the multiplex business, allowing the deduction under section 80-IB(7A).2. Restriction of Deduction under Section 80-IB(7A):The AO restricted the deduction to Rs. 31,09,491 based on the profit from the multiplex, excluding the rental income from Big Bazaar. The CIT(A) agreed with the AO, stating that the deduction should only be allowed on the income from the multiplex. The Tribunal, however, allowed the deduction on the entire income, including the rental income, as the multiplex theatre definition includes both cinema theatres and commercial shops.3. Non-allowance of Expenses:The CIT(A) did not allow certain expenses, including depreciation on cars and machinery, while calculating the deduction under section 80-IB(7A). The Tribunal dismissed this ground as it was an alternative to the main issue of treating rental income as part of the multiplex business.4. Disallowance of Cost of Improvement:The AO disallowed 75% of the development expenses claimed by the assessee on the sale of plots due to lack of proper verification. The CIT(A) allowed partial relief but upheld most of the disallowance. The Tribunal directed the AO to re-examine the evidence provided by the assessee and allow the claim if substantiated.5. Treatment of Loss on Reduction in Realizable Value of Closing Stock:The AO treated the loss on revaluation of closing stock as a capital loss. The CIT(A) upheld this view. The Tribunal, however, held that the revaluation based on a registered valuer's report should be treated as a business loss, allowing the assessee's claim.6. Failure to Account for Loss in Profit & Loss Account:The assessee claimed that the AO failed to account for the loss as per the Profit & Loss account. This ground was not pressed by the assessee and was dismissed as not pressed.Conclusion:The Tribunal allowed the appeal partly, directing the AO to treat the rental income as part of the multiplex business, allow the deduction under section 80-IB(7A) on the entire income, and re-examine the evidence for the cost of improvement claim. The Tribunal also allowed the treatment of the revaluation loss as a business loss. The stay application filed by the assessee was dismissed.