2012 (5) TMI 419 - AT - Income Tax

Validity of reopening - Business income or house property - income from business centre - Held that he notice u/s 148 of the Act dtd. 23.3.2006 was served on the assessee on 24.3.2003 which is within a period of 6 years from the end of the relevant assessment year. - in view of the decision of the Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (2007 -TMI - 6563 - SUPREME Court) the reassessment proceedings initiated by the A.O. and upheld by the Ld. CIT(A) are valid Regarding business income or house property income - Held that - the receipts from business centre as income from house property. - decision of Shambhu Investment (2001 (3) TMI 77 (HC)) and various other decisions followed.- Decided against the assessee Reimbursement of expenses - Income from House Property - the reimbursement of Telephone and electricity expenses should be excluded from the business centre receipt. - Appeal is allowed by way of direction to the A.O. to exclude an amount of Rs.3, 82, 700/- from the business centre receipt while calculating the business centre receipt as income from house property Allowance of depreciation and other expenditure - held that - the assessee is entitled to deduction u/s 24(1) and considering the fact that part of the expenditure relating to earning of business centre income might have been included in the expenses debited therefore in our considered opinion the entire expenditure cannot be allowed as deduction. Similarly since the assessee is only partially utilizing the premises at Parel for conducting its business and also getting rental income from the said premises therefore in our opinion full depreciation cannot be allowed on the Parel premises Income from financing activity - AO treated the income under the head income from other sources - held that - assessee that the assessee in a systematic and organized manner had started the business of financing activity which is in line with one of the main objects of the Memorandum of Association and as per the resolution passed by the board of Directors. Therefore the income from financing activity in our opinion has to be treated as business income .

Issues Involved:
1. Validity of reopening of assessment.
2. Treatment of business centre receipts as "income from house property" versus "business income."
3. Treatment of reimbursement of expenses.
4. Allowance of expenses against business income.
5. Treatment of interest income as "income from other sources" versus "business income."
6. Allowance of depreciation and other expenses.

Detailed Analysis:

1. Validity of Reopening of Assessment
The assessee challenged the reopening of the assessment on the grounds that there was no new material or tangible fact that came to light after the original assessment. The assessee argued that the reopening was merely a change of opinion, which is not permissible. However, the Tribunal upheld the reopening of the assessment, stating that the notice under section 148 was issued within the permissible period of six years and that the original return was processed under section 143(1)(a), implying no application of mind by the AO. The Tribunal relied on the Supreme Court decision in Rajesh Jhaveri Stock Brokers (291 ITR 500), confirming the validity of the reassessment proceedings.

2. Treatment of Business Centre Receipts
The AO treated the business centre receipts as "income from house property," which was upheld by the CIT(A). The assessee argued that the receipts should be treated as "business income" due to the various services and facilities provided. However, the Tribunal upheld the CIT(A)'s decision, relying on the Tribunal's decision in the assessee's own case for AY 2003-04 and the decision in Shambhu Investment Pvt. Ltd. vs. CIT (249 ITR 47), confirming that the receipts should be treated as "income from house property."

3. Treatment of Reimbursement of Expenses
The assessee argued that the reimbursement of electricity and telephone expenses should not be included in the "income from house property." The Tribunal found merit in the assessee's submission, noting that in previous assessments, such reimbursements were excluded from the gross business centre receipts. The Tribunal directed the AO to exclude the reimbursement amount from the business centre receipts while calculating the "income from house property."

4. Allowance of Expenses Against Business Income
The AO disallowed various expenses claimed by the assessee, stating that they did not have a nexus with the business income. The CIT(A) allowed partial relief, recognizing that some expenses were necessary for maintaining the corporate status of the assessee. The Tribunal further allowed certain additional expenses, directing the AO to allow specific percentages of the claimed expenses and 50% of the allowable depreciation on the Parel premises and other assets.

5. Treatment of Interest Income
The AO treated the interest income as "income from other sources," which was upheld by the CIT(A). The assessee argued that the interest income should be treated as "business income" due to the systematic and organized manner of the financing activity, supported by a board resolution and one of the main objects of the Memorandum of Association. The Tribunal found merit in the assessee's submission, noting that the interest income had significantly increased in subsequent years, indicating a systematic business activity. The Tribunal directed the interest income to be treated as "business income."

6. Allowance of Depreciation and Other Expenses
The Tribunal directed the AO to allow specific percentages of various expenses and 50% of the allowable depreciation on the Parel premises and other assets. The Tribunal also allowed 75% of the interest expenditure on the vehicle loan, recognizing the business nature of the financing activity.

Conclusion:
The Tribunal upheld the reopening of the assessment, treated the business centre receipts as "income from house property," allowed the exclusion of reimbursement of expenses from the business centre receipts, partially allowed various business expenses, directed the treatment of interest income as "business income," and allowed specific percentages of expenses and depreciation. The Tribunal's decisions were based on a detailed analysis of the facts, previous Tribunal decisions, and relevant case law.

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