TaxTMI 
TaxTMI 
2020 (7) TMI 274
X X X X Extracts X X X X
X X X X Extracts X X X X
....e further erred by holding that the aforesaid expense are alternatively not allowable u/s 32 r.w.s 37(1) of the I.T Act1961. 2. The ld. CIT(A) erred in law and in facts by confirming addition of Rs. 1,20,000/- u/s 23(1)(a) r.w.s 23(4) of the I.T Act, 1961 in respect of flat at Shreenath Tower. 3. The ld. CIT(A) erred in law and in facts by upholding the disallowance of deduction of Rs. 2,25,000/- claimed u/s 24(a) of the I.T Act, 1961 in respect of tower rent." 2. Briefly stated, the assessee who is engaged in the business of a builder and developer, and during the year under consideration was deriving income from house property, long term capital gain and income from other sources had filed his return of income for A.Y 2012-13 on 30.09.2012, declaring a total income of Rs. 1,64,99,349/-.The return of income was processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. In the course of the assessment proceedings the A.O made the following additions/disallowances : (i). Disallowance of expenditure claimed against the income from "other sources" u/s 57(iii) of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee and the revenue being aggrieved with the order of the CIT(A) have carried the matter in appeal before us. We shall first advert to the claim of the assessee that the CIT(A) was in error in sustaining the disallowance of expenditure of Rs. 32,16,525/-. As observed by us hereinabove, the aforesaid claim of expenditure that was raised by the assessee in the return of income against his income from 'other sources' was comprised of the following expenses: Sr. No. Particulars Amount 1. Depreciation on motor car Rs. 15,59,438/- 2. Professional fees Rs. 13,84,227/- 3. Insurance expenses of motor car Rs. 2,10,760/- 4. Car Expenses Rs. 59,873/- Total Rs. 32,16,525/- On a perusal of the return of income, we find, that the assessee had claimed the aforesaid expenses u/s 57(iii) of the Act, against his income from "other sources". Observing, that the said expenses did not have any nexus with the income that was reflected by the assessee under the head income from "other sources", the A.O had called upon him to justify the allowability of the same u/s 57(iii) of the Act. In reply, it was submitted by the assessee that he was enga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ken by the lower authorities that the aforesaid expenses claimed by the assessee could not be demonstrated to have been laid out or expended wholly and exclusively for the purpose of making or earning of the income shown under the head "other sources" is concerned, we find ourselves to be in agreement with the same. But then, the assessee had alternatively claimed that as the motor car was used for travelling in the course of his business of a builder and developer of properties, therefore, he was entitled to claim depreciation on the same u/s 32 of the Act. Also, it was submitted by him that his claim for car expenses was eligible for deduction u/s 37 of the Act. We find that a similar claim of car depreciation and car expenses was raised by the assessee in his case for A.Y 2011-12, which however was disallowed by the A.O vide his order passed u/s 143(3), dated 28.03.2014, and thereafter was upheld by the CIT(A). However, on further appeal the Tribunal while disposing off the assesse's appeal in ITA No. 2201/Mum/2016, dated 03.12.2019 for A.Y 2011-12 had vacated the aforesaid disallowance of car depreciation and car expenses, observing as under: "22. Upon careful consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he lower authorities that the aforesaid expenses could not be shown by the assessee to have been laid out or expended wholly and exclusively for the purpose of making or earning of the income shown under the head "other sources". But then, it was the claim of the assessee before the lower authorities that as the aforesaid expenses were incurred in lieu of professional advice for issues relating to litigation, tax appeals, accounting and compliances in the course of his business, therefore, the same were allowable u/s 37 of the Act. Apart from that, it was claimed by the assessee before the CIT(A) that a similar claim of professional fees was allowed by the A.O while framing the assessment in his case for the A.Y 2011-12, vide his order passed u/s 143(3), dated 28.03.2014. On a perusal of the records, we find that there is no material available on record which would substantiate the claim of the assessee that the professional fees as claimed by him was incurred for availing certain professional services in the course of his business. In fact, the assessee except for harping on his claim that the aforesaid expenses were incurred in lieu of professional advice for issues relating to l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....). On a perusal of the assessment order passed u/s 143(3), dated 28.03.2014 for A.Y 2011-12, we find that the assessee had reflected his share of the ALV of the aforesaid property which was vacant during the year at Rs. 1,80,000/- (½ share). As per the return of income for the year under consideration viz. A.Y 2012-13, it is claimed that the aforesaid property was let out for a total rental receipt of Rs. 1,20,000/-. On the aforesaid basis the assessee had shown his share of the rental receipt at Rs. 60,000/- (½ share). As per Sec. 23(1) of the Act, the ALV of the property shall be viz. (a). the sum for which the property might reasonably be expected to let from year to year; or (b). where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c). where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assesse's claim for deduction u/s 24(a) of the Act was in order. However, the CIT(A) being of the view that the A.O had disallowed the assesse's claim for deduction u/s 24(a) after taking into consideration his submissions, upheld the disallowance made by the A.O. At this stage, we may herein observe that both of the lower authorities had dismissed the aforesaid claim of deduction raised by the assessee without passing any reasoned order. We are not inclined to subscribe to the manner in which the lower authorities had rejected the assesse's claim for deduction u/s 24(a) insofar the same pertained to the rent received from the cellular company i.e without giving any logical reasoning. In fact, we find that though theCIT(A) had reproduced the exhaustive submissions filed by the assessee in context of the aforesaid issue under consideration at Page 28-29 - Para 4.23 - 4.25 of his order, but had failed to adjudicate the same on the basis of a speaking order. In the backdrop of the aforesaid facts, we herein restore the issue to the file of the A.O who is directed to adjudicate the aforesaid claim of the assessee on the basis of a speaking order. Needless to say, the A.O shall in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per viz. M/s Ravi Group Builders & Developers, wherein they had clearly stated that the possession of the said flat would be given to the assessee in December, 2013. Also, it was observed by the CIT(A) that an identical addition of the notional rental income that was made by the A.O in respect of the property in question in the immediately preceding year i.e A.Y 2011-12, was on appeal deleted by his predecessor. In the backdrop of the aforesaid facts the CIT(A) deleted the addition that was made by the A.O towards ALV of the property under consideration. (ii). The revenue being aggrieved has carried the matter in appeal before us. We have heard the authorised representatives for both the parties in context of the issue under consideration and have also perused the orders of the lower authorities and the material available on record. Admittedly, the possession of the aforesaid property was not delivered to the assessee till the end of the year under consideration i.e upto 31.03.2012. In fact, as observed by us herein above, the possession of the property in question was to be delivered in December, 2013. In our considered view, in the very absence of the possession of the propert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....matter in our considered opinion when the assessee has not gotten possession of the said property there was no question of assessee letting out the same and offering rental income. Hence we do not find any infirmity in the order of the learned CIT appeals on this issue." We have perused the aforesaid observations of the Tribunal and being persuaded to subscribe to the view therein taken, respectfully follow the same. Resultantly, we uphold the order of the CIT(A) in context of the aforesaid issue under consideration. 12.2 Commercial Complex - Veena Souk: (i). In the course of the assessment proceedings it was observed by the A.O that the assessee owned a commercial complex (admeasuring 3200 sq. meters) known as "Vena Souk" situated at Mahavir Marg, Kandiwali West. It was noticed by the A.O that the construction of the aforesaid complex was completed in the year 2009 and part completion occupancy certificate was received by the assessee on 07.02.2009. The aforesaid complex comprised of two basements, a ground floor, two upper floors and a terrace above the second floor. It was gathered by the A.O that the assessee had entered into a combined agreement for leave and license ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orders i.e order dated 23.07.2010 & 16.08.2011 directed the assessee not to create any third party rights/or part with the possession/or license of the property in question to any third party, therefore, the assessee was divested of his rights to license the said premises to any third party till the conclusion of the arbitral proceedings; (c). that the assessee in the arbitration petition had raised various claims on the lessee/licensee which inter alia included recovering of the license fee/rent from the licensee for the period starting from 01.07.2009 to 31.03.2013. As such, pursuant to the claim of the assessee that the property was let out and the unrealized rent was to be recovered from the lessee/licensee the ALV of the property was to be determined as per Sec. 23(1)(b), as the actual rent claimed by the assessee i.e Rs. 40,21,000/- p.m was more than the notional rent determined by the A.O. Accordingly, as the entire amount of rent was unrealized the annual value of the property was therefore to be determined at nil, subject to the condition that the amount of rent recovered in the subsequent years would be brought to tax in the hands of the assessee u/s 25AA of the Act.; (d)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der. The AO therefore held that notional rent from this property had to be included in the assesse's income notwithstanding the pending litigation between the assessee and the agreement holder for lease of the property. The AO hsa also referred to the Delhi H.C decision in the case of Ansal Holding Finance & Leasing Co. Ltd. [213 Taxman.com 143]. 4. Upon assessee's appeal the learned CIT(A) further summarised the factual aspect as under: "The appellant had entered into a leave and license agreement with HRMPL in respect of the said property as early as on 17.02.2006. The appellant had even received huge security deposit. However there was a delay in the construction of the property and the occupation certificate could be obtained only in July 2009. The lessee HRMPL contended that the construction was not completed as per the agreement and asked the appellant to complete the construction work before handing over possession. The appellant refused the claim and issued a notice of termination of the agreement on 19/02/2010. The lessee HRMPL thereupon took recourse to legal proceedings and approached the Bombay High Court. The honourable court vide its order d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en two unrelated parties. The dispute between the parties is also not collusive. The prospective tenant did not take possession of the property but got the appellant restrained from letting out the property to any third party. The appellant was earnestly contesting the legal proceedings initiated by the prospective tenant. Thus substantively the conditions in Rule 4 are satisfied. 4.11.7 The Honourable Karnataka High Court had an occasion to decide a somewhat similar issue while deciding the case of Smt. Divya Devi [217 ITR 824]. The honourable court held as under: "7. It cannot be disputed that the question whether the lease is validly terminated and whether the forfeiture has come into effect are the issues pending adjudication in the suit before the City Civil Court and unless a final determination is made thereon, the question of the assessee becoming the owner of the building does not arise. In the facts and circumstances, the CIT(A) as well as the Tribunal have upheld the assessee's contention on the ground that since the dispute between the assessee and the sub-tenant has arisen out of a contract, which is pending adjudication before a Civil Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attracted if the property is inherently incapable of being let out. He reproduced the relevant para as under : "The learned counsel for the Revenue strenuously urged that, irrespective of the factual background of the case, we must hold that the compensation amount received from the shareholders must be taxed in the hands of the assessee-company as income from property exigible to tax under s. 22 of the IT Act, 1961. He contends that once there is any property consisting of buildings and/or land appurtenant thereto, of which the assessee is the owner, irrespective of whether he uses it himself, keeps it locked or lets it out, he is chargeable to tax under s. 22 of the IT Act, 1961, with regard to the annual value of the property as determined under s. 23 of the Act. In the present case, the assessee had not fully parted with the ownership rights and, therefore, continued to be the owner of the property, i.e., the building known as "Nirmal". Hence, he contends, the assessee is liable to tax under s. 22 on the annual value of the property as determined in accordance with s. 23, irrespective of what the assessee collects from its shareholders (who, according to learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court, Mr. Dastur submitted, in our view rightly, that, since the residuary ownership rights of the assessee were inherently incapable of being let out, no computation of the tax could be made under s. 23 and, therefore, the charge under s. 22 fails." 8. Learned CIT(A) further held that similarly the honourable Gujarat High Court has also held in the case of Gaekwad & Co. 277 ITR 553 (Guj) as under: "The Tribunal has, therefore, applied the law laid down by apex Court in case of R.B. Jodha Mal Kuthiala vs. CIT (1971) 82 ITR 570 (SC), which has been explained and applied in the aforesaid decision in case of Podar Cement (P) Ltd. (supra). The ratio of the decision is that, having regard to the object of the Act to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. Applying the aforesaid ratio to the facts recorded by the Tribunal, it is apparent that there is no infirmity in the view taken by the Tribunal which requires this Court to interfere. The Tribunal was justified in law in deleting the income from property known as "Jadhav Bungalow" considering the fact that the assessee herein is not in a posi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r dispute and a court proceeding was operative, therefore, the same could not have been let out. As a matter of fact, the assessee got back the possession of the property as an agent of the court appointed receiver only after the order of the Hon'ble Supreme Court to the said effect on 30/01/2012. As such, it was only after the order of the Hon'ble Apex Court that the assessee was able to rent out the property to a third party w.e.f 02/07/2012. At the same time, we may herein observe that as it has been the claim of the assessee that the property in question during the year under consideration was let out and the unrealized rent was to be recovered from the lessee/licensee viz. HCRMP, therefore, such amount of unrealized rent would be brought to tax in the hands of the assessee u/s 25AA of the Act in the year of receipt. Accordingly, in terms of our aforesaid observations we uphold the view taken by the CIT(A) that as the property in question was inherently incapable of being let out during the year under consideration because of the legal constraint imposed by the High Court, therefore, the reasonable rent for which it might be let-out could not be computed. As a consequence, sinc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment". In the rule so framed, as a result of these directions, the expression "ordinarily" has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether or not the passing of this order, beyond a period of ninety days in the case before us was necessitated by any "extraordinary" circumstances. 17. We find that the aforesaid issue after exhaustive deliberations had been answered by a coordinate bench of the Tribunal viz. ITAT, Mumbai 'F' Bench in DCIT, Central Circle-3(2), Mumbai Vs. JSW Limited & Ors. [ITA No. 6264/Mum/18; dated 14/05/2020, wherein it was observed as under: "Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the prese....