2014 (8) TMI 392 - HC - Income Tax

Allowability of set off business loss against income from house property u/s 70 Held that - Assessee evidently has stopped its manufacturing activity and rented out the entire factory premises to other party - Still, it is showing huge repair expenses to the factory in its books of accounts also, it is showing three transactions of sale in order to show that it still carrying on business activity - these three transactions are only a device to claim huge expenses being debited in the profit and loss account and which are not allowable as a deduction in computation of income from house property assessee has not carried on any business activity assessee's claim that all the expenses should be set off against the house property income is not acceptable as it will amount to allowing double deduction to the appellant, i.e. one in the form of standard deduction and another in the form of actual deduction from the income from house property - There is no error committed by the Tribunal in disallowing the claim of set off claimed by the assessee from the rental income from the house property claimed u/s 71 of the Act there is no reason to interfere with the order of the Tribunal Decided against Assessee.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in law in upholding the order of the lower authorities in not allowing set off of business loss against income from house property under Section 70 of the Act.
2. Whether the Tribunal passed an unreasonable order devoid of any cogent reasons for rejection.

Issue-wise Detailed Analysis:

1. Set off of Business Loss Against Income from House Property:

The assessee filed a return of income for the year declaring a total income of Rs. 18,58,721, which was processed under Section 143(1) of the Income Tax Act, 1961. During scrutiny assessment, the Assessing Officer (AO) noted that the assessee had rented out its production facility to Rex-tone Industries Limited and received rental income of Rs. 39 lacs, declaring it under the head "income from house property" and claimed a deduction under Section 24 of Rs. 11,70,000. The assessee also claimed a set off of business loss of Rs. 8,71,279 against this income under Section 71 of the Act. The AO disallowed this set off, reasoning that no business or manufacturing activity was carried out during the year, and thus, the business loss claim was not allowable. This disallowance was upheld by the CIT(A) and the ITAT.

The Tribunal and CIT(A) concurred with the AO's findings that the assessee had stopped manufacturing activities and only engaged in minor trading activities, selling three air conditioners for Rs. 45,000. The premises were leased out entirely, and the rental income was rightly classified under "income from house property." The authorities noted that the expenses claimed as business losses were not incurred for business purposes but were related to maintaining the leased property. The CIT(A) detailed that the repair expenses were the responsibility of the lessee, and other expenses like director's remuneration and salary were not attributable to any business activity. The Tribunal confirmed that the set off of business loss from rental income would amount to a double deduction, which is not permissible.

2. Tribunal's Order and Cogent Reasons:

The assessee contended that the Tribunal did not consider the decision of the Delhi Bench in ITO vs. Mokul Finance Private Limited, which was relied upon by the assessee. The court noted that while the Tribunal should have considered this decision, the court itself reviewed it and found it inapplicable to the present case. The Tribunal's reliance on the Rajkot Bench decision in Master Silk Mills (P) Ltd was also challenged, but the court clarified that the Tribunal's decision was based on the facts of the case and not solely on the Rajkot Bench's decision.

The court upheld the concurrent findings of the AO, CIT(A), and ITAT, agreeing that the assessee's claim of business loss set off was not substantiated by any business activity, and the expenses were related to the property leased out. The court found no error in the Tribunal's order and dismissed the appeal, affirming that the authorities below had correctly applied the law and provided sufficient reasons for their decisions.

Conclusion:

The High Court dismissed the appeal, affirming the decisions of the AO, CIT(A), and ITAT, which disallowed the set off of business loss against rental income from house property, citing lack of business activity and prevention of double deductions. The Tribunal's order was found reasonable and sufficiently reasoned, despite the assessee's contentions.