2016 (10) TMI 1145 - AT - Income Tax

Nature of income - rental income received on account of leasing out the pulverizer - income from business or income from other sources - business was closed due to temporary lull - Held that - Since the pulverizer was leased out to M/s U.M.D.S.P. Ltd. for the same purpose, which the assessee was doing from the same machinery. Therefore, it is not established that there was a temporary lull in the business. Further, it is also not clear from the record for what period this pulverizer was leased out to M/s U.M.D.S.P. Ltd. Whether the lease was only for the year under consideration or for a longer period. Further, what was status in the subsequent years. The crucial facts regarding temporary lull in the business are not available on record. The period of lease is also not known from the records available. Thus restore the issue to the file of the ld. CIT(A). Accordingly, this ground of appeal is allowed for statistical purposes only. Additions of various expenses disallowed - Held that - Since, these issues can be decided only when the character of the rental income received on account of leasing out the pulverizer to M/s U.M.D.S.P. Ltd. is decided, as already restored back the issue to the file of the ld. CIT(A). Therefore, these grounds are also restored back to the file of the ld. CIT(A) for deciding the issues de novo.

Summary

Issues involved:
1. Classification of income as business income or income from other sources.
2. Disallowance of environment expenses.
3. Disallowance of dead rent expenses.
4. Disallowance of bonus expenses.

Issue 1: Classification of income as business income or income from other sources:
The Assessing Officer observed that the assessee company was engaged in mining/trading activities and had not carried out any business activity during the year under consideration. The only income shown was rental receipt for leasing out machinery. The Assessing Officer assessed the income as income from other sources, stating that the assessee was not engaged in letting out plant and machinery as a business activity. The CIT(A) allowed the appeal of the assessee, considering the machinery lease as incidental to the business. However, the ITAT found insufficient evidence of temporary lull in business or the lease period, leading to a lack of clarity. The issue was restored to the file of the CIT(A) for further examination.

Issue 2: Disallowance of environment expenses:
The revenue challenged the deletion of an addition of &8377; 4,82,593 made by the AO on account of disallowance of environment expenses. However, this issue could only be decided after determining the character of the rental income, which was already referred back to the CIT(A) for reconsideration.

Issue 3: Disallowance of dead rent expenses:
The revenue contested the deletion of an addition of &8377; 3,35,268 made by the AO on account of disallowance of dead rent expenses. Similar to the previous issue, this matter was also referred back to the CIT(A) for fresh adjudication.

Issue 4: Disallowance of bonus expenses:
The revenue objected to the deletion of an addition of &8377; 17,99,281 made by the AO on account of disallowance of bonus expenses. As with the other issues, this matter was remanded to the CIT(A) for a fresh decision once the primary issue of income classification was resolved.

In conclusion, the ITAT allowed the revenue's appeal for statistical purposes only, remanding all issues back to the CIT(A) for reconsideration and further examination based on the classification of income as business income or income from other sources.