TaxTMI 
TaxTMI 
2026 (5) TMI 1204
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.... A.Y. 2018-19 declaring income of Rs. NIL. The case of the assessee was selected for scrutiny by issue of notice u/s 143(2) of the Act dated 22.09.2019. During the course of assessment proceedings, the ld. AO noted that, though an amount of Rs. 16,93,24,009/- was credited to the P&L Account on account of rental income under the head 'Revenue from Operation' but no income was disclosed under the head 'House Property'. The ld. AO vide notice u/s 142(1) of the Act dated 29.12.2020 required the assessee to furnish complete factual details relating to the rental receipts reflected in Form 26AS. The assessee furnished its reply dated 07.01.2021 wherein it was submitted that, the assessee company was formed in the year 1988 and since then, it has been engaged in the business of real estate development and sale/ lease of real estate properties. As part of its real estate business, the appellant had acquired commercial properties in a shopping complex named City Centre, Salt Lake for commercial exploitation. It was also submitted that since F.Y. 2004-05, the assessee has been letting out these commercial properties and has derived rental income in the form of license fees and utility charge....
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....bove action of the AO. 5. Assailing the action of the lower authorities, the ld. AR submitted that, the assessee had acquired immovable properties being commercial spaces situated within the commercial complex known as CITY CENTRE, Saltlake, Kolkata for which it had initially obtained loans from shareholders and other group/related concerns, which were later on re-financed by Kotak Mahindra Bank in 2016. He showed us that,in terms of the agreements for purchase of the said commercial spaces, the Developer was also required to install and provide specified amenities and utilities such as fire fighting system, electrical installations, DG Set power backup etc. The Developer was also obligated to provide services for maintaining and operating the utilities installed in the said commercial centre. He thus submitted that, the installation and provisions of utilities within the commercial spaces was integral part of the property acquired by the assessee in single composite transaction. The utilities installed within the premises were delivered by the Developer to the assessee simultaneously with handing over of the constructed spaces. The ld. AR also showed us that, the commercial con....
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....ss income u/s 28 of the Act. 8. We have heard the rival submissions and perused the material placed on record. The limited issue required to be adjudicated is whether the rental receipts of the assessee is assessable under the heads 'Business Income' or 'House Property'. It is seen that, the assessee company was formed with the intent and object to pursue real estate development and also letting out of properties. The relevant objects set out in its MOA is noted to be as under:- "A. The Main objects of the company to be pursued on its incorporation are :- 1. To own, purchase, acquire, take on lease, hire, let-out, sub-let, exchange, sell, work, deal, plan, design, construct, erect, build, repair, remodel, demolish, develop, improve, decorate, furnish, maintain, administer, manage, control, grade, curve, pave, cement and maintain, land, buildings, flats, room, show-room, shops, auditorium, hall, market, shed, mines, factories, mills, plants, farms, structures, houses, apartments, hospitals, farms, schools, places of worship, highways, roads, paths, streets, sideways, courts, alleys, payments, and to do other, similar construction levelling or paving work, and to....
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....ces, generators, stables garrages, telephone, telex, intercom, and other communication facility, duplicating, Xerox, typing and other copying facility, computers, secretarial services and all other services, privileges, benefits, advantages & amenities which may be required in connection therewith and for the purpose to acquire all or any of the rights, assets, properties, obligations and liabilities of any firm, company, corporation, or of any other person with regard to management, maintenance, control and operation of common portions of any building or market." 9. It is observed that, in pursuance of its main objects, the assessee had acquired spaces situated within the commercial complex, CITY CENTRE, Saltlake, Kolkata. The commercial spaces purchased were elaborately designed & constructed and under the terms of purchase, the Developer was specifically required to install utilities & amenities at the commercial spaces. The assessee also employed a taskforce to run, operate & maintain the commercial space. The commercial space owned by the assessee is found to have been systematically let out to various tenants in consideration of rent which was collected under two different....
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....e was sold to different buyers. Portions of the second building were let out to various tenants. The assessee had offered the rental income derived from the properties by way of business income. The AO instead assessed it under the head "House Property". On appeal, the High Court following the ratio laid down by the Hon'ble Supreme Court(supra) held that the objects of the company must also be kept in view to interpret the activities. The High Court noted that the fact that the Memorandum of the assessee permitted it to let out properties and therefore it was held that the rental income derived from properties was assessable as business income and not income under the head house property. The relevant findings applicable to the present case are noted to be as follows:- "14........Since the object in the Memorandum permitted the appellant to carry on business in letting out properties and as 85% of the income of the appellant was by way of deriving rent and lease rentals, in our view the income from rent constituted the business income of the appellant. Since compensation of Rs. 53,50,000/- was paid by the appellant, the landlord of the premises, to obtain possession from t....
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....her the figure in the return is taxable or not and then to determine the tax in accordance with law. In determining the same, a decision has to be reached on the issue raised. Unless a decision is reached, it cannot be said that the issue was adjudicated or decided. Keeping these principles of law as formulated by the Courts in mind, the finding by the Assessing Officer and Tribunal that declaring the rental income under the head "income from house property" precludes the appellant from claiming deduction cannot be accepted as Memorandum permitted it to carry on business of letting out properties and indisputably it was carrying on business in letting out properties and in carrying on such trading activity had paid compensation. The observation of the Tribunal that the appellant had all along, including in this assessment year, had shown the income under "Income from house property" cannot be a ground for denial of the deduction as in the earlier assessment years never an occasion arose for adjudication or decision on the said issue. Thus the conduct of the appellant cannot be called approbate and reprobate since in V.MR. P. Firm (supra) it was held that "As in the case of estoppel....
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....ment in Excel Industries Ltd. (supra) and in AR.J Security Printers (supra) do not support the stand of the Revenue as in the case in hand there was no earlier decision. The judgments in Gobind Sugar Mills Ltd. (supra) and in Mather & Platt (India) Ltd. (supra) are not relevant as these are cases of acquisition of property where the respective assessee's had acquired a right to a property. The judgment in Hemraj Mahabir Prosad (P.) Ltd. (supra) is inapplicable to the facts of the case in hand as therein assessee was not the owner and the building was taken on sublease. In Azimganj Estate (P.) Ltd. (supra) the subject matter was whether the income derived from letting out the unsold flats was income from house property and not business income which is not the case in hand. 16. Since Memorandum of the appellant company was not considered, the judgment in CIT v. Estate of Omprakash Jhunjhunwala (supra) or the judgment in Sultan Brothers (P.) Ltd. (supra) does not further the case of the revenue as Supreme Court therein held that "Whether a particular letting is business has to be decided in the circumstances of each case" and "each case has to be looked at from a businessman&....
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....view that rental income was rightly offered by the assessee by way of 'Profits & Gains from Business'. The finding of the ld. AO that such income is to be assessed as income from house property is not correct and is vacated. The ld. AO is directed to treat such income as business income and determine the taxable income of the assessee accordingly. This ground no. 1 is accordingly allowed. 14. The issue raised in Ground No. 2 is against the estimated disallowance of expenses to the extent of Rs. 8,39,29,488/-. 15. The facts in brief are that, during the course of assessment, the ld. AO vide notice u/s 142(1) of the Act dated 29.12.2020 had required the assessee to furnish the details of expenses along with documentary evidences which had increased more than 25% in comparison to last year. Later on, the ld. AO vide notice dated 30.03.2021 had called for evidences in respect of all those expenses exceeding Rs. 5 lakhs incurred for all the four segments of business and for Corporate Segment. In response, the assessee furnished the details of expenses exceeding Rs. 5 lacs vide letter dated 07.04.2021. It is observed that, the assessee had filed head-wise break-up of these expenses....
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.... our notice that, the assessee had furnished names & PANs wise break-up of all the items of expenses along with sample invoices and that no specific infirmity or defect in even a single instance was pointed out by the ld. AO. He also pointed out that, the assessee had also furnished the details of TDS deducted on the expenses, as applicable, along with the TDS returns, which were also not doubted by the ld. AO. According to him therefore, the impugned estimation of disallowance was based on pure conjectures and lacked any rationale basis. He further claimed that the ld. AO had not rejected the books of accounts or invoked Section 145(3) of the Act and therefore, it was contended that the estimated disallowance of expenses was legally untenable as well. 17. Per contra, the ld. DR supported the order of the lower authorities. He urged that the impugned issue in the alternate be sent back to the ld. AO to verify the details of expenses furnished by the assessee. 18. We have heard the rival parties and perused the material placed before us. The undisputed facts on record are that, the assessee had furnished the details of the following expenses before the AO along with sample inv....