TaxTMI 
TaxTMI 
2023 (7) TMI 1253
X X X X Extracts X X X X
X X X X Extracts X X X X
...., objects of the assessee-company are primarily to carry on business as infrastructure developers of all classes and kinds of construction activities and carrying on business of purchase/sale of property or acquiring/leasing out any property on rent. The object clause as per the Memorandum of the company reproduced at page no.3 of the CIT(A)'s order as under: "/. To carry on the business of as infrastructure developers, contractors, builders and to carry on all classes and kinds of construction activities including earthen dams, massonery dams, canal earth work, lining, structures, road work, buildings bridges, godowns, workshops, commercial complex, : residential' colonies and industrial estate and industrial construction and to construct, execute, carry out, improve, work, develop, administer or control of works and conveniences of all kinds including ports, docks, harbour, piers, wharves, canals, dams, reservoirs, embankments, irrigation, reclamation, improvement, sewage, drainage, sanitary, factory sheds, hotels, warehouses, markets, malls, special economic zones and to execute turnkey projects including structural design, supervision and construction of such proje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as Rs. 54,97,47,328/-, the AO held the borrowing had been utilized for making investment in fixed assets, which were not used for the purpose of business of the assessee, and therefore, to that extent the assessee's claim of interest expenditure needed to be disallowed as not incurred for the purpose of business of the assessee as per section 37(1) of the Act. Accordingly, the disallowance of interest expenses in relation to this fixed assets amounting to Rs. 4,83,25,510/- was made by the AO. Since the entire interest expenses were disallowed u/s. 36(1)(iii) of the Act, the disallowance of interest expenses u/s. 24 of the Act against deemed rental income was not made separately. 5. Other than the above, the AO also noted that the assessee had earned tax exempt income in the form of agricultural income amounting to Rs. 14.00 lakhs having made investment of Rs. 20.76 crores in plots of land and earned the income on the same. He accordingly made disallowance of expenses incurred for the purpose of earning exempt income as per provisions of section 14A of the Act by invoking Rule 8D for computing the same and accordingly disallowed an amount of Rs. 50,08,553/- being attributable to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtaining to borrowings utilized for acquiring properties classified as business assets, and these fixed assets had been considered for taxing the deemed rent income thereon as per section 23(a) of the Act, therefore the assessee was entitled to deduction of interest expenses against the same, as per section 24 of the Act, and the disallowance of interest expenses, if any was to be restricted only to the extent of Rs. 1,27,99,143/- incurred for acquiring property not used for either of the businesses of the assessee. Since the issue of claim of interest expenses under section 24 of the Act was restored back to the AO, the AO was directed to examine, accordingly, entire claim of interest expenses of the assessee, in relation to income from house property only returned by the assessee, and also in relation to deemed rental income of property held as fixed assets as computed by the Department. 10. In relation to disallowance made under section 14A of the Act of the interest and administrative expenses, the ld.CIT(A) fairly agreed with the AO that it was fit case for making disallowance under section 14A of the Act, but at the same time, he restricted the same to the extent of exempt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lication of provisions of sec. 23(a) of the Act by AO without appreciating the contention that deeming provisions would not be applicable to rental income on fixed assets but would be assessed as business income when the appellant was dealing in real estate business. 3. Ld. CIT (A) erred in law and on facts to hold that properties not held as stock in trade but fixed assets were clearly in the nature of investments on which deeming provisions of Sec. 23(a) were applicable. 4. Ld. CIT (A) erred in law and on facts directing AO to verify details of interest expense incurred for acquisition of the properties despite being satisfied and holding that entire loan was taken for business purpose more specifically for the acquisition of properties." 13. As narrated above, the entire case of the assessee and the issues arising there from begin from properties held as fixed assets being considered for taxing the deemed rental income earned thereon as per provisions of section 23 of the Act, with interest expenses incurred against the income earned by the assessee being denied to the assessee, as per section 24 of the Act and 36(1)(iii) of the Act. In our view it is pertin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the same were sold, but could not get suitable tenants for the same, therefore, as per section 23(i) of the Act, annual letting value (ALV) of these was taken as NIL. The AO was not convinced with reply of the assessee, and noted that as per provisions of section 22 all properties consisting of land & building appurtenant thereto of which the assessee is the owner were covered under the purview of section 22 of the Act for determining their ALV to be brought to tax under the head income from house property. He noted that all the conditions as required under section 22 were fulfilled in the case of the properties noted by him being held as inventory and fixed assets, and since the assessee had not returned any ALV of the same, the deemed annual value with respect to these properties had to be determined in accordance with section 22 of the Act. He rejected all the contentions of the assessee dealing with the same at para 6.2 as under: "6.2 The reply of the assessee is duly considered however the same is not found acceptable (except for the plot of land where no deemed rental income is required to be offered) for reasons discussed as under. Section 22 of the Income Tax is as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....I.T Act does not apply to it as the assessee is in the business of real estate. It is worthwhile to note that the section 22 of the I.T Act is the charging section for Income from House property. The section does not differentiate whether the property belongs to an individual/firm/company etc. and also does not differentiate the nature of business carried on by the assessee. Any person owning any property which is not used for the purpose of carrying on business shall have to comply with the provisions of this section. Therefore, though the assessee is in real estate business, the properties owned by him as reflected in the schedule to Fixed Assets and inventory held by it are to be charged under the head income from house property as assessee is not carrying any business from the said properties. iv) The assessee has also argued that for the purpose of determining ALVu/s 23(1) of the Act, the sub clause (c) shall be applicable as the company had intended to let the property until it is sold. The above argument of the assessee is also not tenable as the sub - clause (c) of section 23(1) deals with providing of vacancy allowance only when the property is 'actua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 are as under: "7.3 The income from House property is charged to tax as per the provisions of Part- 0 of Chapter -IV of the Act. As per the provisions of section 22 the Annual value of a property consisting of buildings or lands appurtenant thereto owned by the assessee except which are occupied for t he purposes of any business or profession are chargeable to tax under the head of income "income from house property" . The provision of section 22 of the Act reads as under: "Income from house property. 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property" The manner of determining the income from house property is prescribed in section 23 of the Act which, reads as under: "[Annual value how determined. 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let] [(5) Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to [one year] from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil. Clause 5 of section 23 was inserted by Finance Act, 2017w.e.f. 01.04.2018. 7.3.1 A bare perusal of the provision of section 23(a) would make it clear that even if the property is not actually let out the rental income has to be assessed at a sum for which the property might reasonably expected to be let out. Hence, AO has rightly added the deemed rental value to the total income on the properties which are not held by the appellant for the purpose of its business. The provisions of section 23(a) are clearly applicable to the properties which are not held as stock in trade. They are clea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income from house property on the properties held as Fixed Assets (except in the case of on property namely Shakti 404- 4th Floor for which AO has taken the deemed rental of Rs. 21,00,000/- on the basis of the rental income received by the appellant on the similar property). Ld. AR has brought to my notice that though AO has mentioned all the properties on which deemed rent is added as fixed assets however, AO has also computed the deemed rental income on the stock in trade of Rs. 7,36,92,078/-. I find that in the balance sheet the inventories of Rs. 7,36,92,078/- are reflected also some of the properties on which the deemed income is attributed were also part of such properties in the A.Y.2015-16 wherein such deemed income was attributed to stock in trade also. AO has also in the impugned assessment order in para 5.1 mentioned the fact that appellant has held properties under the head inventories. Undersigned have in A.Y.2014-15 & 2015-16 in the appellant's case held inter-alia relying upon the judgment of Hon'ble jurisdiction al High Court in the case of Neha Builders (2008) 296 ITR 661 that deemed rental income u/s. 23 of the Act cannot be computed on the proper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee, and their ALV was to be excluded for taxation under section 22 of the Act, is rejected as untenable in law. 24. The next contention of the ld.counsel for the assessee that since the properties were vacant throughout the year, the assessee is entitled to vacancy allowance, and accordingly, the ALV of the property would therefore be NIL. The AO, we find, has rejected this contention of the assessee noting that the sub-clause(c) of sub-section (1) of section 23 which deals with providing vacancy allowance allows the same only when the property is 'actually let out' and not based on the intention of letting out. The ld. counsel for the assessee was unable to controvert this finding of the AO. In view of the same, this contention of the ld.counsel for the assessee is also rejected. 25. As a result, we see no reason to interfere in the order of the ld.CIT(A) holding that the property held as fixed assets qualified for the ALV thereon being subjected to tax as income from house property as per the provisions of section 22 of the Act. 26. Ground No.1 to 3 of the assessee's CO is dismissed. 27. Ground No.4 of the CO of the assessee is against the direction of theld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loan taken was against the properties were furnished to the AO. Appellant furnished the ledger account copy of the loans obtained from all the properties including the land , buildings, shops, bungalows etc., majority of the properties are financed by the related parties e.g. Zen Tradelink Pvt. Ltd., Mukesh Majithia, Nikhil Majithia, Jay Majithia, Rashmin Majithia. Appellant further submitted that since, all the properties except the vacant land have been subjected to tax either as returned income by the appellant or by way of additions made by the AO, and in view of the fact that appellant has only one line of business i.e. dealing in real estate the entire interest has to be allowed Appellant further contended that though for this query they had given the details of interest against property by mistake but the details of entire interest claimed were furnished to the AO and no part of the interest was found to have been laid out for any other purpose except acquisition of properties. Appellant further submitted that AO has not given any specific show cause notice before treating the interest as not relatable to the properties on which rental income has been returned and assessed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2. Since in the CO filed by the assessee, we have already upheld the order of theld. CIT(A) that deemed rental income of the properties held as fixed assets had been rightly brought to tax as income from house property under section 24 of the Act, we shall proceed therefrom. 33. We first deal with ground no.2 of the Department's appeal, which is connected to the aforestated issue, wherein the Revenue is aggrieved by the order of the ld.CIT(A) who deleted the addition made of deemed rental income on account of property held as stock-in-trade. The addition being of Rs. 28,85,598/- pertaining to the property held as stock-in-trade of Rs. 5,15,28,528/-. i) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs 28,85,598/- made on account of deemed rent on stock in trade of Rs. 5,15,28,528/-. 34. As noted above, the ld.CIT(A) deleted the addition following decision of the Hon'ble jurisdictional High Court in the case of Neha Builders (supra) holding that property held as stock-in-trade did not qualify for ALV thereto being subject to tax in terms of section 22 of the Act. The ld.DR was unable to distinguish the said case before us. Inview of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant has in the reply dated 22.10.2018 which has been reproduced by the AO in the impugned assessment order submitted that out of the total interest the interest amounting to Rs. 1,27,99,143/- only has been laid out for plots on which no income is assessed (including deemed income assessed by the AO). Appellant furnished all the details and AO has not been able to find any deficiency or any part of interest which is paid on the funds not used for the purpose of business; which is acquisition of properties including plots. AO has disallowed the interest of Rs. 4,83,25,510/-mainly because the same is incurred on the properties held as Fixed Assets. Since, the income from such Fixed Assets has been added as per the provisions of section 23 of the Act (Rs. 1,59,30,256/-) by the AO appellant is entitled to deduction u/s. 24 of the Act towards interest on such properties. Appellant has itself given the working of interest of Rs. 1,27,99,143/- pertaining to plots on which no income has been added and such plots continue to be a part of Fixed Assets hence, this sum cannot be allowed and the disallowance to this extent is confirmed. However, since, the properties are held as capital appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowable under section 14A of the Act pertaining to the exempt income earned as under: i) Interest expenditure Rs. 50,08,553/- ii) Administrative expenses Rs. 17,56,014/- Total disallowance Rs. 67,64,567/- 41. The ld.CIT(A) upheld order of the AO to the extent of disallowance under section 14A of the Act was maintainable, but at the same time, restricted it to the extent of exempt income earned by the assessee following the decision of the Hon'ble jurisdictional High Court in the case of Corrtech Energy P.Ltd., (2014) 223 Taxmann 130 (Guj). The finding of theld.CIT(A) at para 8.1 of his order is as under: "8.1 In the course of appellate proceedings the appellant through Ld. AR contended .that the disallowance u/s. 14A cannot exceed the quantum of exempt income. After careful consideration of the facts of the case, impugned assessment order and the submissions made I find that appellant has not been able to controvert the findings of the AO that part of the interest: is laid out for acquisition of agriculture land. Further, as elaborately discussed in earlier part of this order appellant has substantial interest expense amounting to Rs,6....