2015 (10) TMI 807 - AT - Income Tax

Rectification of mistake - administrative expenses has been directed by the Tribunal to be disallowed even when, there was no specific ground taken by the Revenue and, secondly, the depreciation has been disallowed even on the portion of the premise, on which the assessee was using it for its own business purpose i.e., it was having its office in the said premises - whether the income from business centre should be treated as business income or income from house property ? - Held that - Insofar as the administrative expenditures are concerned, the Assessing Officer himself has worked out the disallowance of administrative expenditure after allocating on the basis of the receipts of the house property from the total receipts. This was a very reasonable basis for allocating administrative expenditure and once the income has been assessed as income from house property, then whatever administrative expenditure is pertaining to income from house property gets disallowed. There is no mistake apparent from record insofar as the direction of disallowance of administrative expenditures are concerned because what is disallowable is only 16% of the administrative expenses. As regards the second plea of depreciation that, at least it should have been allowed on the portion of the property used by the assessee for its office use, we find that no such ground has been raised by the assessee nor any specific plea was made. Besides this, the Tribunal has directed to disallow the deprecation, which was a logical corollary when the leasing income has been held to be assessed under the head income from house property . Thus, there is no mistake apparent from record which can be said to be rectifiable within the ambit of section 254(2). The assessee s miscellaneous application is thus dismissed.

Summary

Issues Involved:
Assessment of rental income as "income from house property" or "business income" | Disallowance of depreciation and administrative expenses | Rectification of impugned order under section 254(2) of the Income Tax Act, 1961

Assessment of Rental Income:
The main issue revolved around whether the income from a business center should be categorized as "business income" or "income from house property." The Assessing Officer deemed the rent from property leasing as income from house property, disallowing deductions beyond those specified under section 24(a). Additionally, the AO rejected the claim for depreciation on office premises, furniture, fixtures, and air-conditioning, arguing that repairs deduction already covered these expenses against income from house property. The administrative expenses were allocated based on the ratio of property receipts to total receipts, resulting in a 16% disallowance for expenses related to income from house property. The Commissioner (Appeals) considered the entire leasing income as business income, allowing depreciation and acknowledging depreciation on the property used for the assessee's office. However, the Tribunal reversed this decision, aligning with previous cases and treating leasing income as income from house property, leading to the disallowance of depreciation and administrative expenses.

Disallowance of Depreciation and Administrative Expenses:
The Tribunal, upon reversing the Commissioner (Appeals) decision, directed the disallowance of depreciation and administrative expenses. The Departmental Representative argued that any modification to the Tribunal's order would constitute a review not permitted under section 254(2). The Tribunal justified the disallowance, emphasizing that once income is classified as from house property, related administrative expenses should be disallowed. Regarding depreciation, the Tribunal found no grounds raised by the assessee for allowing depreciation on the property used for office purposes. As the leasing income was now considered income from house property, the logical consequence was the disallowance of depreciation on the property. The Tribunal concluded that no rectifiable error existed within the scope of section 254(2), dismissing the assessee's application.

Rectification Under Section 254(2):
The assessee sought rectification/recall of the Tribunal's order under section 254(2) of the Income Tax Act. The applicant contended that the Tribunal's decision did not consider the portion of the property used for office purposes and the related depreciation and administrative expenses. The Departmental Representative argued against revisiting the order, asserting that the disallowance was a consequence of the income classification change. The Tribunal upheld the original decision, noting that no specific grounds were raised for allowing depreciation on the office premises and that the disallowance of administrative expenses was reasonable given the income classification. Consequently, the Tribunal dismissed the assessee's miscellaneous application, affirming the disallowance of depreciation and administrative expenses.

This detailed analysis of the judgment from the Appellate Tribunal ITAT MUMBAI highlights the issues surrounding the assessment of rental income, disallowance of depreciation and administrative expenses, and the application for rectification under section 254(2) of the Income Tax Act, 1961.