2018 (2) TMI 1081 - AT - Income Tax

Appeal allowed for statistical purposes, revenue's appeal dismissed. Tribunal rules on capital assets, commission, interest.

The assessee's appeal was allowed for statistical purposes, with certain issues remanded back to the CIT(A) for further examination. The revenue's appeal ... Disallowance of commission paid - Held that:- For the present year it is undisputed that commission paid by the assessee is 12.28% of revenue whereas, in Assessment Year 2008-09 the coordinate bench has accepted 12.73% of the commission of the turnover as reasonable. Therefore, we do not find any reason to confirm the disallowance. In the present case also the assessee has submitted the details of commission paid. It is not the case of the AO that such commission is not backed by room rent revenue. in view of this as the coordinate bench has determined the percentage based on the gross revenue we do not find any reason to confirm the disallowance. In the result ground No. 1 of the appeal fo the assessee is allowed. Interest expenditure on funds borrowed to purchase the property not considered as acquisition of the property - Held that:- CIT(A) has held that as the appellant had received the possession of the property on 12.10.2006 the interest paid prior to and after receiving the possession is deemed to have been allowed against the annual value of the property. However, he has held that interest expenditure is to be a part of cost of acquisition but because of section 24B the assessee is not entitled to the same. However, the ld CIT(A) has failed to appreciate that though the deed of this property was executed on 12.10.2006 but the property was incapable of being let out as there was no occupancy around that area. However, the above fact could not be demonstrated before the ld Assessing Officer and we do not find any such mention in the order of the ld Assessing Officer, therefore, we set aside Ground back to the file of the ld CIT(A) to correctly adjudicate to ascertain the facts whether the property is capable of being let out or not and then decide about the amount of interest to be considered as cost of acquisition. Treatment to interest expenditure incurred by the assessee for the business purposes - Held that:- CIT(A) should have examined the claim of the assessee of allowability of the above expenditure as allowable interest expenditure against the business income. In view of this we set aside this ground of appeal to the file of the ld CIT(A). In the result ground of the appeal of the assessee is allowed accordingly. Gain from sale of property - LTCG or STCG - period of holding - Held that:- Both properties were acquired on the date on which the properties were allotted to the assessee and therefore, both the properties are long term capital asset. In short he held that the date of allotment of the property the date of acquisition of the property. Ld DR could not point out that how the date of acquisition should not be considered from the date of allotment of the property. In view of this we do not find any infirmity in the order of the ld CIT(A) in holding that both the properties are held by assessee for more than 36 months and therefore, they are long term capital assets - Decided against revenue Issues Involved:1. Disallowance of commission paid to auto-rickshaw drivers, cab drivers, brokers, and travel agents.2. Cost of acquisition of property including interest on borrowed funds.3. Allowability of interest expenditure on borrowed funds for property purchase.4. Treatment of interest expenditure incurred for business purposes.5. Treatment of properties as long-term or short-term capital assets.6. Admission of additional evidence by the CIT(A).Issue-wise Detailed Analysis:1. Disallowance of Commission Paid:The assessee contested the disallowance of Rs. 50,000 out of the commission paid to auto-rickshaw drivers, cab drivers, brokers, and travel agents. The assessee argued that the commission paid (12.28% of revenue) was reasonable and supported by vouchers, similar to a previous year where 12.73% was accepted. The tribunal found no reason to disallow the commission, as it was consistent with the previous year's accepted percentage and backed by room rent revenue. Thus, the disallowance was deleted.2. Cost of Acquisition of Property Including Interest:The assessee claimed interest of Rs. 22,30,640 on borrowed funds as part of the cost of acquisition of a property. The AO disallowed this, arguing the interest was wrongly capitalized. The CIT(A) confirmed the disallowance, stating the interest should have been claimed against the annual value of the property. The tribunal remanded the issue back to the CIT(A) to ascertain whether the property was capable of being let out and to decide on the interest's capitalization.3. Allowability of Interest Expenditure on Borrowed Funds:The assessee claimed interest expenditure of Rs. 22,51,908 on borrowed funds for property purchase. The AO and CIT(A) disallowed this, stating the interest was already considered against the annual value of the property. The tribunal remanded the issue back to the CIT(A) to correctly adjudicate the facts and decide on the interest's capitalization.4. Treatment of Interest Expenditure Incurred for Business Purposes:The assessee claimed Rs. 16,39,790 as interest expenditure for business purposes, which was previously capitalized due to an accountant's mistake. The CIT(A) rejected this claim, citing the lack of a revised return. The tribunal, referencing the Delhi High Court's decision in Jai Parabolic Springs Ltd, held that fresh claims before appellate authorities are permissible and remanded the issue back to the CIT(A) for examination.5. Treatment of Properties as Long-term or Short-term Capital Assets:The revenue contested the CIT(A)'s treatment of two properties as long-term capital assets. The AO argued the properties were short-term assets based on the conveyance deed dates. The CIT(A) treated them as long-term assets based on the allotment dates. The tribunal upheld the CIT(A)'s decision, stating the properties were held for more than 36 months from the allotment dates, thus qualifying as long-term assets.6. Admission of Additional Evidence by the CIT(A):The revenue argued that the CIT(A) admitted additional evidence (allotment letters) without giving the AO an opportunity to review them. The tribunal found no infirmity in the CIT(A)'s decision, noting that the allotment letters were mentioned in the sale deeds and were necessary for determining the date of acquisition.Conclusion:The appeal of the assessee was allowed for statistical purposes, with certain issues remanded back to the CIT(A) for further examination. The appeal of the revenue was dismissed, upholding the CIT(A)'s decisions on the treatment of properties as long-term capital assets and the admission of additional evidence. The order was pronounced in open court on 05/02/2018.