2020 (12) TMI 576 - HC - Income Tax

High Court quashes notional rent order, upholds penalty decision. Assessing regularization fee as business loss.

M/s. Brigade Enterprises Ltd. Versus The Additional Commissioner Income Tax, Range-11, Bangalore

The High Court ruled in favor of the assessee, quashing the order to compute notional rent for an under-construction building. The Court found the ... Income from house property - ITAT determining the Annual value for an under construction building on notional basis under sections 22 and 23 - HELD THAT:- As noted in the return of income filed for the Assessment Year 2011-12 assessee has admitted the rental income of ₹ 30,00,000/- from letting out the school in question. However, the Tribunal has not appreciated the aforesaid aspect of the matter and in a cursory manner, has held that the revenue authorities have rightly brought the income to tax as the assessee has not been able to produce any evidence to the contrary. The findings recorded by the authorities under the Act is based on surmises and conjectures and has to be termed as perverse. First substantial question of law is answered in favour of the assessee and against the revenue. Treating the fee paid towards the regularization of additional construction as against the sanctioned plan as penalty - HELD THAT:- The second substantial question of law is answered against the assessee and in favour of the revenue in view of the judgment of M/S. PRESTIGE ESTATES PROJECTS LTD. [2020 (11) TMI 952 - KARNATAKA HIGH COURT] for the present. However, the same shall be subject to decision of special leave petition which is pending before the Supreme Court. Issues:1. Computation of notional rent for an under-construction building.2. Treatment of fee paid towards regularization of additional construction.3. Allowability of regularization fee as business loss.Analysis:1. The appeal involved the issue of computing notional rent for an under-construction building for the Assessment Year 2010-11. The Assessing Officer determined an annual letting value and raised a substantial demand. The Commissioner of Income Tax (Appeals) partly allowed the appeal, and the Tribunal maintained the value at Rs. 15,00,000 for computing income from house property. The assessee contended that assessing notional rent for a building under construction is impermissible in law. They argued that the occupancy certificate was obtained after completion, and no rental income was realized during the construction period. The High Court found the authorities' findings to be based on conjectures and termed them as perverse. The Court ruled in favor of the assessee, quashing the order to compute notional rent for the under-construction building.2. The second issue revolved around treating the fee paid for regularization of additional construction as a penalty. The Tribunal's decision was influenced by a previous court order, which the assessee cited. However, the revenue authorities argued that the findings were based on factual records and not perverse. The High Court upheld the decision in favor of the revenue, citing the authorities' factual findings as reasonable and not arbitrary.3. The final issue was the allowability of the regularization fee as a business loss under section 28 of the IT Act. The Tribunal's order was quashed based on the analysis of the first issue regarding the computation of notional rent. The High Court disposed of the appeal, providing a detailed analysis and ruling in favor of the assessee on the first issue while upholding the revenue's stance on the second issue. The decision on the third issue was influenced by the outcome of the first issue and the pending special leave petition before the Supreme Court.