Ita/528/2015 Of M/S. Brigade Enterprises Ltd v. The Additional Commissioner Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 8[TH|]DAY OF DECEMBER 27072 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD ILT.A. NO.528 OF 2015 BEITWEEN M/S. BRIGADE ENTERPRISES LTD.29TH & 30TH FLOOR, WORLD TRADE CENTRENO,.26/1, DR. RAJKUMAR ROADBENGALURU-560055(REP. BY ITS CHAIRMAN & MANAGINGDIRECTOR, SRI. M.R. JAISHANKAR>AGED ABOUT 60 YEARS|S/O RAMACHANDRA SETTY). (BY SRI. S. SHARATH, ADV., FOR)SRI. CHYTHANYA K.K. ADV.,) .... APPELLAN[ AND THE ADDITIONAL COMMISSIONERINCOME TAX, RANGE-11_NO.14/3-A, 5TH FLOORR.P. BHAVAN, NRUPATHUNGA ROADBANGALORE-56000 1. (BY SRI. K.V. ARAVIND, ADVOCATE) .., RESPONDENT THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 08.07.2015PASSED IN ITA NO.1275/BANG/ 2014, FOR THE ASSESSMENTYEAR 2010-11, PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF.LAW STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER-PASSED|BY|THE|ITAT,.BANGALORE.IN|ITANO.1275/BANG/2014DATED08-07-2015.FOR|THE|ASSESSMENT YEAR 2010-11. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS.DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT Mr.Sharath S., learned counsel for the assessee. Mr.K.V.Aravind, learned counsel for the revenue. 2. This appeal under Section 260-A of the IncomeTax Act, 1961 (hereinafter referred to as ‘the Act’, forsnort) nas been filed by the assessee. The subjectmatter of the appeal pertains to the Assessment Year2010-11. The appeal was admitted by a Bench of thisCourt vide order dated 15.02.2015 on the following|substantial questions of law: "1. Whether, in the facts and in the|circumstances of the case, the Tribunal Isright in law in determining tne Annual. value of Rs.15,00,000/- for an _ undeconstruction building on notional basisunder sections 77 and 73 of IT Act? 2. Whether, in the facts and in the.circumstances of the case, the Tribunal Isright in law in treating the fee paid.towards the regularization of additionalconstruction as against the sanctionedplan as penalty? 3. Whether, in the facts and in the.circumstances of the case, the Tribunal Isright in law in failing to appreciate thatregularization fee is allowable as businessloss in computing the profits and gains|under section 28 of IT Act?" 3. Facts leading to filing of this appeal brieflystated are that the assessee is a public limited companyregistered under the Companies Act. The assessee is a.builder engaged in the business of construction and sale|of residential and commercial buildings. The assessee|filed its original return of income on 15.10.2010 and.Submitted a revised return on 31.03.2012 in which an§ income of Rs.6,27,8/7,633/- for Assessment Year 201011 was declared. The case of the assessee was selectedfor scrutiny and a notice dated 25.08.2011 underSection 143(2) of the Act was issued. The assessee, in.response to the aforesaid notice, submitted all thedetails. The Assessing Authority, Dy an order dated|26.02.2013,inter alia.held that the assessee had rentedout a part of the building to M/s. Brigade Foundation andeven though no rental income has been admitted butthe building has been completed in part and therefore,|the assessee, in the interest of justice Drought to tax|50% of the annual letting value admitted for the|subsequent Assessment Year i.e. 2011-12 in 2010-11.itself and determined the net income of Rs.10,50,000/-|and the same was brought to tax as income from house.property. The Assessing Officer raised a demand of|Rs.9,/3,14,/7/6/-. 4. The assessee thereafter filed an appeal before|the Commissioner of Income Tax (Appeals), who by an.order dated 09.06.2014, partly allowed the appealpreferred by the assessee. The assessee thereuponapproached the Tribunal (hereinafter referred to as ‘theTribunal’ for short) by filing an appeal. The Tribunal, by |an order dated 16.10.2014, partly allowed the appeal of.the assessee in respect of Assessment Year 2010-11.However, the order of the Assessing Officer as well as.the Commissioner of Income Tax (Appeals) insofar as itpertains to determination of annual letting value at.Rs.15,00,000/- for the purpose of computing the incomefrom house property, was maintained. In the aforesaidfactual Dackground, the assessee has approached this.Court. 5. Learned counsel for the assessee submitted thatcomputation of notional rent in respect of a Duilding—which was under construction is not permissible in law. It is also pointed out that the assessee had obtained theOCCUDaANICcertificateON|03.08.7010|from.Bruhat.Bengaluru Mahanagara Palike (hereinafter referred to as|‘the BBMP’ for short) and prior to issuance of occupancycertificate, it was not permissible to occupy the buildingin view of the bye law No.5.7 of building bye laws of the|BBMP. It is also pointed out that from paragraph 11 of |the order passed by the Assessing Officer, it is evident|that the Assessing Officer himself has found that theassessee has denied that he has realized any rent forthe period in question. It is urged that the notionalincome cannot be assessed on ae_ Duilding undeconstruction as the same comes into existence legally|Only on issuance of occupancy certificate. Therefore,the finding recorded by the authorities under the Act are.perverse. 6. It is also Submitted tnat the second substantialquestion of law involved in this appeal nas been. answered against the assessee by a Bench of this Court|videorder|dated23.11.7070|passedIn|TTA.No.428/2016. In support of aforesaid submission,reliance has been placed on the decision of the High|Court of Bombay in"SHARAN HOSPITALITY (P) LTD.Vs. DEPUTY COMMISSIONER OF INCOME-TAX,|CIRCLE 9(3)' (2020) 268 TAXMAN 443 (BOMBAY 7. On the otner nand, learned counsel for the|revenue submitted that all the authorities under the Act.have recorded the findings of fact against the assessee|and the order passed by the Tribunal does not give rise|to any substantial question of law. Tne findings of factrecorded by the Tribunal is on the basis of the materialOn record and the same cannot be treated as perverse.It is also pointed out that even the assessee has notdisputed the fact that during the Assessment Year,|Dullding was handed over to M/s.Brigade Foundation to.run the school, on contract basis and the assessee has) failed to declare any rental income. Therefore, theAssessing Authority has rightly computed the notionalrent on the building in question as the same was.completed in part. In this connection, our attention has—been invited to paragraphs 29 and 30 of the order|passed by the Assessing Authority, paragraph 5.3 of the|order passed by the Commissioner of Income Tax.(Appeals) as well as paragraph 21 of the order passed|by the Tribunal. 8. We have considered the submissions made onboth sides and have perused the record. Clause 5.7 ofthe building bye laws of the BBMP provide that no.person shall occupy or allow any other person to occupy.any new building or part of a new building for anypurpose whatsoever until occupancy certificate to suchbuildings or part thereof has been granted by an officer|authorized to give such a certificate. In other words, abuilding legally comes into existence only on issuance of. 8. We have considered the submissions made onboth sides and have perused the record. Clause 5.7 ofthe building bye laws of the BBMP provide that no.person shall occupy or allow any other person to occupy.any new building or part of a new building for anypurpose whatsoever until occupancy certificate to suchbuildings or part thereof has been granted by an officer|authorized to give such a certificate. In other words, abuilding legally comes into existence only on issuance of. an occupancy certificate. From perusal of paragraphs 29and 30 of the order passed by the Assessing Authorityconjointly, it is evident that the assessee has declared|the rental income in the subsequent Assessment Yearand has not admitted any rental income for theAssessment Year in question. The Commissioner of.Income Tax (Appeals), in paragraph 5.1 of its order, has.also held that no rental income has been admitted from|the school building whicn was Nanded over to M/s.Brigade Foundation. However, it has been noted in the|return of income filed for the Assessment Year 2011-17.The assessee has admitted the rental Income of!Rs.30,00,000/- from letting out the scnool in question.However, the TridDunal Nas not appreciated the aforesaidaspect of the matter and in a cursory manner, Nas neid.that the revenue authorities have rightly brought the|income to tax as the assessee has not been able toproduce any evidence to tne contrary. The findingsrecorded by the authorities under the Act is based on sSurmises and conjectures and has to be termed asperverse. 9. In view of preceding analysis, the_ firstsubstantial question of law is answered in favour of theassessee and against the revenue. The second|substantial question of law is answered against the|assessee and in favour of the revenue In view of the!judgment dated 23.11.2020 passed in ITA No.428/2016.for the present. However, the same shall be subject to |decision of special leave petition which is pending before|the Supreme Court. 10. In view of preceding analysis, the order of theTribunal dated 08.07.2015 insofar as it pertains tocomputationOf notional.rentInrespect.Of the �����������0�������������������������������������������#��������������������� ������������������������������������������ ������������ ����������