Advance receipt for providing any facility cannot be consider as income and in the absence of Income from property sec 28 is not applicable

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘E’ DELHI

BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL

ITA No. 1865(Del)/2011

Assessment year: 2007-08

Income-tax Officer,

Ward 6(1), New Delhi.

(Applicant)

Vs.

M/s M.G. Builders & Co. P. Ltd.,

105, First floor, Loha Mandi,

Naraina, New Delhi-110028.

PAN: AAACM 0053E

(Respondent)

Applicant by: Shri R.S. Negi, Sr. DR

Respondent by: Shri Anoop Sharma &

Shri M.K. Giri, Advocates

Date of hearing: 13.02.2012

Date of pronouncement: 17.02.2012

ORDER

PER K.G. BANSAL: AM

The facts in brief are that the assessee is dealing in real estate, iron and steel and shares. The return was filed on 29.10.2007 declaring total income of Rs. 8,60,640/-. The assessment was completed on 22.12.2009 at total income of Rs. 32,10,340/-. The assessment was subject matter of appeal before the CIT(Appeals)-IX, New Delhi, who partly allowed the appeal. Various grounds taken by the revenue are discussed ad seriatum hereunder.

2. Ground No. 1 is general in nature. No argument was made by either side in respect of this ground. Therefore, this ground is dismissed.

3. Ground no. 2 is that the ld. CIT(Appeals) erred in restricting the disallowance made by the AO by invoking the provision contained in section 37(1) of the Income-tax Act, 1961, to Rs. 7,00,456/- against Rs. 8,33,882/-. It is also mentioned that he ignored the finding of the AO that the assessee did not intentionally file details of room no. 108 of its business premises.

3.1 The facts mentioned in the assessment order are that a number of connected concerns are operating from the business premises of the assessee situated at X-21, Loha Mandi, Naraina, New Delhi. The premises are owned by the director of the assessee-company. The other concerns operating from these premises are M/s Shori Lal Kakshmiri Lal, M/s Intertrade Services and M/s Steel Agencies. The assessee was requested to clarify the issue in the context of expenditure incurred under miscellaneous head, i.e., whether the expenses pertained to the business of the assessee or they were common expenses. The details of the expenses have been furnished on page no. 3 of the assessment order and they totaled to Rs. 11,11,842/-. The finding of the AO is that these are common expenses of the parties mentioned above and the assessee. Therefore, a sum of Rs. 2,77,960/- has been allowed and the balance sum of Rs. 8,33,882/- has not been allowed.

3.2 The matter was examined by the ld. CIT(Appeals) in the course of hearing of the appeal. It was submitted that the information in this regard was submitted in letter dated 23.09.2009 and such information has been tabulated by him on page 2 of the assessment order. The assessee was conducting its business from 105, X-21, Loha Mandi, Naraina, New Delhi. This is the address furnished to the Income-tax department and mentioned in the assessment order. No other company or concern is conducting business from this premise. The expenses claimed by the assessee pertain to its business only. The other companies have incurred similar expenses for their businesses, the details of which have been filed. The ld. CIT(Appeals) considered the assessment order and the submissions of the assessee. It has been held that the AO was not justified in disallowing any expenses on the footing that these were common expenses. However, he also found that a sum of Rs. 1,33,426/- was incurred towards renovation of the premises. He held the expenditure to be capital in nature and also allowed depreciation thereon. The balance expenditure was allowed. Thus, the assessee got the relief of Rs. 7,00,456/-

3.3 Before us, the ld. Senior DR submits that there is an error in drafting the grounds. The AO had disallowed a sum of Rs. 8,33,882/-. The ld. CIT(Appeals) granted relief of Rs. 7,00,456/-. Thus, he sustained the disallowance of Rs. 1,33,426/- only. Our attention has been drawn to page

no. 19 of the paper book, which has a chart regarding expenses incurred by the assessee, M/s Shori Lal Kashmiri Lal, M/s Steel Agencies and M/s Intertrade Services in respect of 16 heads, being salaries, car expenses, postage and telegram, water and electricity charges etc. It shows that M/s Shori Lal Kashmiri Lal incurred expenditure of Rs. 8,65,940/- under this head. M/s Steel Agencies incurred expenses of Rs.9,44,003/-, and M/s Intertrade Services incurred expenses of Rs. 12,06,169/-. His case is that the assessee has not been able to furnish conclusive evidence that all expenses incurred by the assessee were in the course of its business only as the details in respect of room no. 108 were not furnished. In this connection, he also relies on the order of the AO.

3.4 In reply, the ld. counsel submits that the ld. CIT(Appeals) has considered all aspects and he has rightly come to the conclusion that the expenses were incurred in the course of business of the assessee. Apart from referring to the table on page no. 19, which has already been discussed, our attention has been drawn towards accounts of the connected concerns placed in paper book from page nos. 20 to 26, which show the expenses tabulated at page 19. Page 27 shows the details of turnover for various years from assessment year 1996-97 to assessment year 2007-08 in terms of iron and steel, real estate, shares and tyres and tubes etc. Page no. 28 shows similar expenses incurred by the assessee from assessment year 2001-02 to assessment year 2007-08. It is contended that the expenses have been allowed in past. Assessment orders of earlier years have also been placed in the paper book from page nos. 29 to 41 to show that the expenses have been allowed. In view of the aforesaid, it is argued that the ld. CIT(Appeals) was right in allowing revenue expenses to the extent he allowed. It is also submitted that the assessee has not challenged the order of the ld. CIT(Appeals) in respect of his finding about capital expenditure of Rs. 1,33,426/-.

3.5 We have considered the facts of the case and submissions made before us. On perusal of the details placed in the paper book, and mentioned above, it is clear that the assessee and other connected concerns are maintaining separate books of account, doing separate businesses and assessed separately. The kind of expenses claimed in this year had been claimed in earlier years and allowed in assessments. There is no contrary evidence on record that the expenses are common expenses. In view thereof, we are of the view that the ld. CIT(Appeals) rightly allowed the expenditure to the extent of Rs. 7,00,456/-. Thus, this ground is dismissed.

4. Ground no. 3 is that the ld. CIT(Appeals) erred in deleting the addition of Rs. 13,32,749/-, made by the AO on account of sale of property. It is also mentioned that he ignored the finding of the AO that the assessee did not file any document or detail to substantiate its claim during assessment proceedings.

4.1 In the assessment order, it is mentioned that the assessee sold apartment nos. 516 and 517 admeasuring 243 sq. ft. and 94 sq. ft. respectively situated at Wazirpur, Delhi. the cost of these apartments was Rs. 1,04,585/- and the consideration received was Rs. 3,37,000/-. Thus, profit of Rs. 2,32,415/- was declared in respect of these sales as business profit. The assessee had received advances of Rs. 3,48,151/- and Rs. 9,84,598/- in respect of these premises on account of electric connections and fire fighting equipments. These amounts were shown as current liabilities and provisions. The AO held these advances to be in the nature of sale proceeds and, therefore, the sale price was enhanced to Rs. 13,32,749/-, leading to an equivalent addition to the total income.

4.2 After considering the assessment order and the submissions of the assessee, the finding of the ld. CIT(Appeals) is that the advances were received for providing permanent electric connection and fire fighting equipments. The amounts were received over a period of time under an agreement dated 30.01.1999. The assessee incurred expenses of Rs. 4,66,609/- in respect fire fighting equipments and installation thereof and Rs. 13,12,596/- in respect of electric connections. Thus, against the aggregate advance of Rs. 13,32,749/-, the expenditure of Rs. 17,79,205/- had been incurred. The details in this respect were filed in the course of assessment proceedings. Both these items were not taken into account in the profit and loss account. Since the expenditure exceeded the advances, no addition can be made on this ground.

4.3 Before us, the rival parties drew our attention towards the findings of lower authorities. The ld. senior DR relied on the order of the AO while the ld. counsel relied on the order of the ld. CIT(Appeals).

4.4 We have considered the facts of the case and submissions made before us. We find that certain advances were received by the assessee from the intending buyers in terms of agreement dated 30.01.1999 for providing electrical connection and fire fighting equipments. These advances were not considered to be receipts in the nature of income as specific expenditure had to be incurred for providing aforesaid facilities to the buyers. In the year of sale, it has been ascertained that the expenditure exceeded the advances received by the assessee. In these circumstances, the question of adding advances to the income of the assessee does not arise. Therefore, it is held that the ld. CIT(Appeals) rightly deleted this addition also. In the result, ground no. 3 is dismissed.

5. Ground no. 4 is that the ld. CIT(Appeals) erred in deleting the addition of Rs. 1,76,200/- made by the AO in respect of taxing house property income from vacant premises. It is also mentioned that the assessee has been owning the property for a long period of time and a part of it has also been given on rent.

5.1 In the course of assessment, the AO found that the basement and second floor of building No. 2 and second floor of building No. 5 at Azadpur, held as stock, were neither sold nor given on rent. Therefore, he proceeded to determine the property income u/s 22 by estimating the fair rental value. Finally, he computed the annual value at Rs. 1,75,200/-, which was added to the rent received by the assessee in respect of other properties.

5.2 After considering the assessment order and the submissions of the assessee, the ld. CIT(Appeals) mentions that the building is a trading asset, the profits from sale of which have been offered for taxation u/s 28 of the Act and not u/s 22 of the Act. Under section 28, the concept of notional rent is absent. He also referred to a factual error that basement in building no. 2 had been sold long back on 28.10.1994. In view of the aforesaid, he deleted the addition of Rs. 1,75,200/-.

5.3 The ld. senior DR drew our attention to page nos. 29 to 35 of the paper book, which constitute assessment order for assessment year 2001-02. Page nos. 34 and 35 are the computation of income. In this computation notional rent of Rs. 2,00,700/- has been added in respect of 5th floor of Wazirpur building. By analogy, it is argued that the notional rent from the instant building is also chargeable to tax.

5.4 In reply, the ld. counsel referred to page no. 14 of the paper book, which is a part of submissions made before the ld. CIT(Appeals). It was submitted that the assessee has been holding stock of flats at Wazirpur and Azadpur. In this year, stock at Wazirpur had been completely sold. The stock of Azadpur is slow moving item due to defects in location etc. The assessee has been able to sell the vacant premises on 01.12.2008 and 13.05.2009. These assets are trading assets, whose income cannot be computed u/s 22. In view of these facts, it has been contended that the findings of the ld. CIT(Appeals) are justified on the facts of the case.

5.5 We have considered the facts of the case and submissions made before us. We find that the undisputed fact is that the premises are trading assets and have been shown as stock-in-trade. No rent has been received in respect of these unsold assets. The income from the properties have been shown and accepted to be taxable u/s 28. Unless specifically provided a notional income cannot be brought to tax. In other words, the concept of real income is applicable to computation of business income unless specifically provided otherwise. The assessee has not earned any income from the stock-in-trade. Therefore, we are of the view that the ld. CIT(Appeals) rightly allowed the relief to the assessee. In the result, this ground is also dismissed.

6. Ground no. 5 is against deleting the addition of Rs. 15,457/-, made by the AO in respect of house-tax. In this connection, it is mentioned that since notional income from vacant premises has been brought to tax u/s 22, the municipal tax paid against these premises is not deductible u/s

37. The finding of the AO has been reversed by the ld. CIT(Appeals). We have upheld the finding of the ld. CIT(Appeals). Therefore, this ground does not survive for adjudication. Accordingly, this ground is also dismissed.

7. In the result, the appeal is dismissed.

                                                           Sd/-                           Sd/-

                                                   (Rajpal Yadav)          (K.G. Bansal)

                                                 Judicial Member     Accountant Member

17/02/2012.

SP Satia

Copy of the order forwarded to:-

M. G.Builders & Co. P. Ltd., New Delhi.

ITO, Ward 6(1), New Delhi.

CIT(A)

CIT,

The D.R., ITAT, New Delhi.                                                                            Assistant Registrar.