If rent is due for receipt only after fulfillment of certain conditions precedent, which are not yet fulfilled, then no addition for Income from house property is to be made : Mumbai ITAT

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Question before the Mumbai Bench of ITAT was- Whether if rent is due for receipt only after fulfillment of certain conditions precedent, which are not yet fulfilled then no addition for Income from house property should be made? Facts of the case The assessee company, engaged in the business of real estate construction and letting of commercial premises, had filed return of income for relevant AY. During the relevant year, the assessee did not carried out any business activity. The case was selected for scrutiny assessment u/s 143(3). In the assessment so framed u/s 143(3), AO made addition under the head 'income from house property' amounting to Rs.11.76 Crores. On appeal, CIT(A) deleted the same after observing that the assessee had received only advance from the tenant, Junobo Hotels Pvt. Ltd. and had not received any rent from them as they had not occupied the premises for want of Coastal Regional Zone certificate and Occupancy certification from Municipal Corporation of Greater Mumbai. Since conditions precedent had not met with consequently no compensation/rent accrued/became due, to the assessee, therefore, the addition made of Rs. 11,68,50,670/- at accrual basis by assessing the amount as House Property income was not found to be in order and therefore, it was decided to direct the AO to delete the addition. Aggrieved Revenue filed appeal before the Tribunal. Tribunal held that, ++ the assessee had entered into a lease agreement dated 18.02.2011, which was subsequently amended vide supplementary agreement dated 16.01.2012 by which the company had given on lease its property i.e land along with building structure thereon at Juhu, Mumbai to M/s Junobo Hotels Pvt Ltd. However, no rental income has been offered in the Profit and Loss Account. As per the terms of the contract, rent is receivable on Rent commencement date which is in turn contingent upon the fulfillment of certain conditions precedent. Until such completion of conditions precedent, money received will be treated as an advance. Since during the year under consideration, conditions precedent had not been fulfilled i.e. Ministry of Environment and Forest (MOEF) approval and Occupancy Certificate (OC) from Municipal Corporation of Greater Mumbai (MCGM) has not been received, the rent received was treated as an advance and accordingly not offered for tax in the return of income, ++ it is also relevant to mention here that proposed lessee had treated the amount of Rs 2.10 crores given to the proposed lessor during the impugned period as

If rent is due for receipt only after fulfillment of certain conditions precedent, which are not yet fulfilled, then no addition for Income from house property is to be made : Mumbai ITAT

Question before the Mumbai Bench of ITAT was-

Whether if rent is due for receipt only after fulfillment of certain conditions precedent, which are not yet fulfilled then no addition for Income from house property should be made?
 
 
Facts of the case


 The assessee company, engaged in the business of real estate construction and letting of commercial premises, had filed return of income for relevant AY. During the relevant year, the assessee did not carried out any business activity. The case was selected for scrutiny assessment u/s 143(3). In the assessment so framed u/s 143(3), AO made addition under the head ‘income from house property’ amounting to Rs.11.76 Crores. On appeal, CIT(A) deleted the same after observing that the assessee had received only advance from the tenant, Junobo Hotels Pvt. Ltd. and had not received any rent from them as they had not occupied the premises for want of Coastal Regional Zone certificate and Occupancy certification from Municipal Corporation of Greater Mumbai. Since conditions precedent had not met with consequently no compensation/rent accrued/became due, to the assessee, therefore, the addition made of Rs. 11,68,50,670/- at accrual basis by assessing the amount as House Property income was not found to be in order and therefore, it was decided to direct the AO to delete the addition. Aggrieved Revenue filed appeal before the Tribunal.


 Tribunal held that,


  the assessee had entered into a lease agreement dated 18.02.2011, which was subsequently amended vide supplementary agreement dated 16.01.2012 by which the company had given on lease its property i.e land along with building structure thereon at Juhu, Mumbai to M/s Junobo Hotels Pvt Ltd. However, no rental income has been offered in the Profit and Loss Account. As per the terms of the contract, rent is receivable on Rent commencement date which is in turn contingent upon the fulfillment of certain conditions precedent. Until such completion of conditions precedent, money received will be treated as an advance. Since during the year under consideration, conditions precedent had not been fulfilled i.e. Ministry of Environment and Forest (MOEF) approval and Occupancy Certificate (OC) from Municipal Corporation of Greater Mumbai (MCGM) has not been received, the rent received was treated as an advance and accordingly not offered for tax in the return of income,


 it is also relevant to mention here that proposed lessee had treated the amount of Rs 2.10 crores given to the proposed lessor during the impugned period as “advance” and that AO during last year in scrutiny assessment accepted the claim of the assessee that the amount received was only an “advance” and did not form taxable income. The AO also did not consider the fact that only advance of Rs 2.10 crores has been received during the impugned period and no further advance was received after 30.06.2012. The AO did not take into consideration the confirmation given by the proposed lessee that amount given pending compliance of conditions precedent (obtaining of approval from MOEF and later OC from MCGM) has been treated in its (lessee) books of accounts as “advance”;



  as conditions precedent have not been complied with, so nothing has become due to the proposed lessor. Finding of the AO that amount of compensation / advance/ revised advance was due to the lessor at the rate of Rs. 4.20 crores per quarter is not tenable. The addition made by AO on selective reading of the proposed lease agreement was not justified. The detailed finding recorded by CIT(A) are as per material on record which do not require any interference . Furthermore the finding so recorded are supported by observation, which has not been controverted by bringing any positive material on record. In the result, appeal of the Revenue is dismissed

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