2015 (7) TMI 395 - AT - Income Tax

Treatment of rental income Income from house property OR Business income - Held that - The assessee was the absolute owner of the property and, therefore, the rent realized from the exploitation of property rights was taxable under the head income from house property. We find ourselves in agreement with ld. CIT(A) that in view of various decisions noted by him in his order, this issue is no more res integra. As far as the decision of Hon ble Supreme court in the case of Sultan Brothers Pvt. Ltd. (1963 (12) TMI 4 - SUPREME Court ) is concerned, the said decision is not applicable to the facts of the present case because in that case there was composite letting of building fitted with furniture and fixtures for the purpose of paying rent as a hotel. - Decided against assessee. Addition invoking provisions of section 68 - CIT(A) confirmed addition - Held that - In the assessment order the AO observed that during the year under consideration the company did not show any receipt from its manufacturing activity. Therefore, it is not clear as to how the assessee could ask for advance. The assessee did not file any confirmation letter from the party or its bank statement or income-tax return details, PAN etc. Ld. CIT(A) has observed that on perusal of the relevant alleged account of the said party, it was seen that the amounts had been received by the assessee throughout the year beginning from April 2000 up to February 2001. He has observed that if it was advance against sales then one fails to understand as to why dispatch of goods were not made during the year, more so, when the assessee itself had got its stock de-bonded for domestic sales. We find ourselves in agreement with the findings of ld. CIT(A) on this issue who rightly referred to the decision of Hon ble Delhi High Court in the case of Haciendra Farms (P) Ltd. Vs. CIT (2010 (9) TMI 154 - DELHI HIGH COURT ) wherein it has been held that if customer s advance was not proved by assessee by either producing the party or proving with sufficient evidence, then the same can be added u/s 68. The second contention advanced by ld. counsel is that since assessee had offered the amount in AY 2003-04, therefore, this should not be included in AY 2001-02. In this regard we find that the decision relied by ld. counsel were rendered in the context of accrual of income and the same have no application to the present case. We, therefore, confirm the finding of ld. CIT(A).- Decided against assessee.

Summary

Issues:
1. Treatment of rental income as "Income from house property" instead of business income.
2. Addition of advance amount under section 68.
3. Disallowance of sales tax penalty.
4. Dismissal of appeal grounds regarding rental income and advance amount.

Analysis:

Issue 1: Treatment of rental income
The appellant, a telecom equipment manufacturer, declared a loss but earned rental income. The Assessing Officer (AO) assessed the rental income under "Income from house property" instead of business income. The CIT(A) upheld this decision, citing legal precedents. The appellant argued that if not business income, it should be assessed as income from other sources. However, the Tribunal agreed with the CIT(A), stating the rent was taxable under "income from house property" as the appellant was the property owner. The Tribunal distinguished the case from the appellant's reference case, leading to the dismissal of this ground.

Issue 2: Addition of advance amount
The appellant claimed to have received an advance amount from a non-existent company. The AO made an addition under section 68 due to the lack of evidence and non-cooperation from the appellant. The CIT(A) affirmed this decision, emphasizing the appellant's failure to provide necessary documentation. The appellant argued based on purchase orders and subsequent adjustments in later years. However, the Tribunal agreed with the CIT(A), highlighting the absence of proof of the advance and the relevance of the Delhi High Court decision. The Tribunal rejected the appellant's reliance on other cases regarding income accrual, leading to the dismissal of this ground.

Issue 3: Disallowance of sales tax penalty
Grounds related to sales tax penalty disallowance were not pressed during the hearing and were consequently dismissed.

Overall Decision
The Tribunal dismissed the appeal, upholding the decisions regarding the treatment of rental income and the addition of the advance amount under section 68. The Tribunal found the appellant's arguments insufficient in providing evidence to support their claims, leading to the dismissal of the appeal grounds.