DCIT-CC-8(4) Vs Offbeat Developers Private Limited (ITAT Mumbai)
The Mumbai Income Tax Appellate Tribunal examined Revenue appeals involving disallowances made on various expenses claimed by a mall developer engaged in leasing property and providing related services, where income was offered under both “Income from House Property” and “Profits and Gains from Business or Profession.” The Assessing Officer had proportionately allocated several expenses to house property income based on the ratio of rental income to total income and made disallowances on repairs and maintenance, legal and professional charges, employees’ remuneration, advertisement and sales promotion, miscellaneous expenses, and security charges.
On repairs and maintenance, the Tribunal upheld the appellate finding deleting the disallowance, noting that expenditure related to upkeep of common areas of the mall, not the leased premises, and such common area maintenance obligations were contractually undertaken by the assessee. Charges recovered from tenants as Common Area Maintenance (CAM) charges were offered as business income, and corresponding expenses were held allowable as business expenditure.
Regarding legal and professional expenses, the Tribunal observed that the assessee had already made suo motu disallowance for common expenses in proportion to income heads. It held that the Assessing Officer had no tangible basis to further apportion expenses merely because income was taxed under two heads, and therefore upheld deletion of the further disallowance.
For employees’ remuneration, the Tribunal accepted that staff costs related substantially to mall management, maintenance of common areas, and contractual obligations connected with CAM services, income from which was taxed as business income. It found no reason to disturb the appellate authority’s deletion of the further addition beyond the assessee’s own disallowance.
On advertisement and sales promotion expenses, the Tribunal noted that expenditure was incurred to promote the mall as a whole, attract footfalls, support events, and discharge obligations for which recoveries were also made from tenants. While the appellate authority retained a limited disallowance of ₹24 lakh, the balance deletion was upheld because the expenditure was linked with business income and mall operations rather than solely rental income.
For miscellaneous and general expenses, the Tribunal accepted that many expenses were administrative and day-to-day business expenses unrelated to earning rental income. However, since no suo motu allocation had been made in respect of office and general expenses, proportionate disallowance for those specific items was sustained, while the remaining disallowance was deleted.
On security charges, the Tribunal held that security services were provided for common areas of the mall, not inside individual leased units, and corresponding recoveries formed part of CAM charges taxed as business income. It therefore upheld deletion of the entire proportionate disallowance made by the Assessing Officer.
In addition, for Assessment Year 2021-22, the Tribunal upheld the appellate direction allowing verification of an additional deduction claim for property tax, holding that while the Assessing Officer could not entertain a revised claim during assessment proceedings, appellate authorities had power to consider such claims arising from the record and direct verification in accordance with law. On these findings, all Revenue appeals were dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
