2012 (12) TMI 729 - AT - Income Tax

Undisclosed Rental Income CIT(A) deleted the addition - Held that - According to the rent agreement, if the figure of 10% increase is used, the rent receivable from 7.12.2006 onwards should have been Rs. 63,888/- p.m. Similarly, the rent receivable from 7th December, 2007onwards should have been Rs. 70,2777- as per the rent agreement.However, the assessee is only showing rental income of Rs. 55,000/- p.m. in the return of income - As per the agreement actual rent receivable is to be ascertained with reference to the relevant clause of the Rent Agreement, as relied upon by the AO. The CIT(A) has not disputed the correctness of the said clause. Also the said agreement has been entered by the concerned party at will and voluntarily, therefore, there is no statutory bar u/s 23(1) to exclude the said express terms, for the purpose of enhancement of rent in the said Rent Agreement. Having regard to factual matrix of the case, documentary evidence in the form of Rent Agreement cannot be ignored and, hence, the findings of the CIT(A) are reversed and findings of the AO restored - in favour of revenue. Subsidy receivable Capital vs Revenue Receipts Held that - A bare perusal of the Office Memorandum issued by Govt. of India dated 07.01.2003, as reproduced above, clearly reveals the eligibility for such capital investment subsidy @ 15% of their investment in Plant & Machinery subject to ceiling of Rs.30 lacs. The subsidy is also avai lable to the existing units, on their substantial expansion - following case of CIT V Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT) that subsidy for repayment of capital loan is capital receipt. It was held by the Hon ble Apex Court that where main eligibility condition in scheme, under which assessee Sugar Mill was granted subsidy, was that subsidy must be utilized for repayment of loans taken by assessee to set-up new unit or for substantial expansion of existing unit. In such a situation, the subsidy is in the nature of capital receipt and not exigible to tax - in favour of assessee Capitalization of Water and Electricity Expenses - Held that - Copy of account, from which addition has been made, represents details of electricity expenses, which had already been transferred to pre-operative expenses under the head Fixed Assets and no deduction has been claimed in the Profit & Loss Account. Having regard to such contention of the assessee, duly supported by documentary evidence, CIT(A) deleted the addition in respect of such transferred pre-operative expenses - no infirmity in the findings of the CIT(A), and hence, the same are upheld - against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of rental income.
2. Deletion of addition on the issue of treating subsidy as revenue receipt.
3. Deletion of addition on account of capitalization of water and electricity expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Rental Income:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 7,31,737/- made by the AO on account of rental income. The AO observed that the assessee received rental income from letting out properties but did not account for a 10% increase in rent as stipulated in the rent agreements. The AO calculated the rent receivable based on the rent agreements and added the difference to the income from house property. The CIT(A) deleted the addition, stating that only the actual rent received is to be taxed unless it is less than the annual lettable value as per Section 23(1)(a)(b) of the Income-tax Act. However, the Tribunal reversed the CIT(A)'s findings, emphasizing that the actual rent receivable should be ascertained with reference to the relevant clause of the rent agreement. The Tribunal restored the AO's findings, allowing the Revenue's appeal on this ground.

2. Deletion of Addition on the Issue of Treating Subsidy as Revenue Receipt:
The Revenue argued that the CIT(A) erred in deleting the addition made by the AO by treating the subsidy receivable of Rs. 30,00,000/- as a revenue receipt. The AO treated the subsidy as a revenue receipt based on the decision in M/s Abhishek Industries, which dealt with sales tax subsidy. The CIT(A) reversed the AO's findings, noting that the subsidy in this case was a capital investment subsidy meant for setting up new units or substantial expansion, as per the Office Memorandum dated 07.01.2003. The Tribunal upheld the CIT(A)'s findings, stating that the subsidy was intended for investment in Plant & Machinery and not for running the business. The Tribunal noted that the AO had ignored the clear terms of the Office Memorandum and misapplied the decision in M/s Abhishek Industries. The Tribunal concluded that the subsidy was a capital receipt and not taxable, dismissing the Revenue's appeal on this ground.

3. Deletion of Addition on Account of Capitalization of Water and Electricity Expenses:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 6,65,511/- made by the AO on account of capitalization of water and electricity expenses, arguing that the business commenced after 01.10.2007. The AO had added these expenses to the fixed assets, treating them as pre-operative expenses. The CIT(A) deleted the addition, noting that the assessee had already transferred these expenses to pre-operative expenses and did not claim them in the Profit & Loss Account. The Tribunal upheld the CIT(A)'s findings, confirming that the expenses were correctly transferred and not claimed as deductions. The Tribunal dismissed the Revenue's appeal on this ground.

General Grounds:
Ground Nos. 4 & 5 were general in nature and did not require separate adjudication. The Tribunal dismissed these grounds.

Conclusion:
The Tribunal's judgment resulted in a partial allowance of the Revenue's appeal, specifically allowing the appeal concerning the addition on account of rental income while dismissing the appeals on the issues of subsidy treatment and capitalization of expenses.