TaxTMI 
TaxTMI 
2018 (11) TMI 693
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.... confirming the action of AO in disallowing the business loss of Rs. 2,46,06,893/- and treating the same as preoperative expenses. 3 The learned CIT(A) erred in fact and in law in confirming the action of AO in considering rental income of Rs. 1,35,000/- as income from other sources and thereby taxing the said income. 4 The learned CIT(A) erred in fact and in law in confirming the action of AO in not allowing set off of business loss against other income. 5. The learned CIT(A) erred in fact and in law in confirming the action of AO in initiating penalty proceedings u/s. 27l(l)(a). 3. The facts of the case are that the assessee company was engaged in the business of providing immovable property on hire/rent basis. During the year, the assessee was doing construction of building to give on rent. The assessee purchased a land in the financial year 2005-06 and commenced the construction of building a Mall in the Financial Year 2007-08. The Mall is completed in the Financial Year 2009-10. The Company started marketing its property to prospective customers. 4. The assessee entered into a MoU on 19.02.2007 with Cinemax outlining the broad terms of lease of....
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....-. The A.O. accepted the conduct of the business of lease of premises as claimed by the assessee. In first appeal, the ld. CIT(A), after issuing notice for enhancement and affording the opportunity, held that the income of the assessee is from house property and the claim of business loss was denied. 8. In the A.Ys. 2012-13 and 2013-14 ,the A.O, has assessed the income as income from house property which is upheld by the ld, CIT(A). 9. In the proceedings before the Tribunal that assessee submitted that the main object of the Company since incorporation is to carry on the business of leasing of premises. In pursuing this objective, the assessee purchased the land and started constructing the Mall premises. The premises in the Mall are rented out to various parties and t1oe terms of agreement of lease varies from party to party. Referring to the copies of agreements placed in. the Paper Book, it was pointed out that the terms of agreement with each of the occupiers are different. The broad terms of agreements with some of the parties" were being as under: a) Reliance Trends i) The area leased is 18,094 sq.ft. [Page No. 102] from 18.03.2010 for a period of 60 m....
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.... 20%. The total lease period of 9 years. [Page No. 110] ii) The common area maintenance is to be recovered @ Rs. 6 per sq. ft. or the actuals, whichever is higher. [Page No. Ill] iii) Lock-in period of 3 years. [Page No. Ill] iv) The lessor to provide D.G. set for power back up. [Page No. 113] v) The timings of the Mall shall be 11.00 a.m. to 10.00 p.m. However, the Lessee could use the premises between 5.30 a.m. to 10.00 p.m. [Page No. 116] c) Cinemax India Ltd. i) The lessor to ensure occupancy of 50% of Mall premises at all times. If Mall premises exceeding 50% remain vacant for more than 6 months affecting the revenue of lessee, the lease rent to be negotiated. [Page No.143.] ii) Lock-in period of 9 years. [Page No. 146] iii) Services to be provided by the Lessor: [Page No. 159-160] (a) Repairs and maintenance of the Mall. (b) Insurance (c) Overall security systems including security personnel (d) Cleaning and maintenance of common area (e) Maintenance and upkeep of Air Conditioning, Fire Fighting Equipment, Utilities, D.G. Set / Power supply (f....
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....ce cost 152.55 161.17 124.38 c)Depreciation 71.41 78.66 85.02 d)Others 9.38 17.45 9.58 Total (a to d) 345.31 3761.49 287.55 C.Profit 17.34 0.81 (81.73) [Ref. Page No. 256] [Ref. Page No. 256] [Ref. Page No. 35] 13. The assessee submitted that it has to incur substantial expenses towards maintenance, security, cleaning, repairs & maintenance, electricity charges, etc. It has to maintain regular staff and employees either on contract or on regular basis for rendering all the services as agreed with the lessees. 14. The assessee also relied on various decisions in support of the claim that the income of the assessee, in the facts of the case, shall be income from business. The decisions relied are - * Chennai Properties & Investments Ltd. Vs. CIT - 56 taxmanii.com 456 (SC) * Rayala Corporation Pvt. Ltd. Vs. ACIT 72 taxmann.com 149 (SC) * Pr. CIT Vs. Atlantis Multiplex Pvt. Ltd. in ITA Nos. 71/2017 and 61/2017 (All.) * ITO Vs. Nishta Mall Management Co. Pvt. Ltd. in ITA No. 5882/Mum/20lO dated 30.10.2015 (Mum. Trib.) * PFH & Retail Management Ltd. Vs. ITO - ....
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....progress as same was not incurred for purpose of project - It was found that assessee was following AS2 and AS7 issued by ICAl which was mandatory standards whereby direct costs were added to capital work-in-progress being construction of mall and residential complex and all indirect expenses being general overhead were charged to profit and loss account - Whether since assessee had set up business by acquiring land and obtaining approval for construction of mall and residential complex, although mall had not commenced business till end of relevant year, assessee had rightly debited general overhead expenses being indirect expenses incurred, in profit and loss account - Held, yes [Para 8] [In favour of assessee]" 18. The ld. D.R. did not controvert the factual submissions nor has brought to the notice any contrary judgments. 19. We have gone through the relevant record and impugned order. The construction of the building is commenced in the Financial Year 2007-08 and is completed in the Financial Year 2009-10. The source of funds for the construction of Mall being own funds, unsecured loans from promoters as also borrowing to the extent of Rs. 8.65 crores from Financial Insti....
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....ial and facts. The disallowance of expenses of 5% i.e. Rs. 1,07,176/- is prayed to be deleted. 2. The ld. CIT(A)-2, Vadodara has erred in enhancing the income of the appellant in complete disregard of the facts and material placed on record. 3. The ld. CIT(A)-2, Vadodara has erred in law and in facts by wrongly treated the entire income declared by the appellant as income from house property without considering the fact that the same is income earned from business. The impugned addition being in complete disregards of the applicable facts and law is prayed to be deleted. 25. Since we have given relief to the appellant in the preceding year and has held that income from renting of Mall to be treated as business income. Thus, disallowance of expenses of 5% i.e. Rs. 1.07,16,176/-. 26. In the result, this appeal is also allowed. ITA No. 1864/Ahd/2016 for AY. 2012-13. 27. The assessee has taken following grounds: 1. The ld. CIT(A)-2, Vadodara has erred in confirming the addition made by the ld. A.O. and wrongly treated the entire income declared by the appellant as income from house property without considering the fact that the same is incom....