2015 (10) TMI 1065 - AT - Income Tax

Addition as income from House property or business income - allow the sister concern to use of premises - Held that - Assessee had to borrow ₹ 75,00,000/- lacs from their associate concern for a short period and in consideration thereof allowed them to use the said building only for a period of one year. This is also been explicitly provide in the Memorandum of Understanding arrived between associates. The assessee firm also made the associate concern to pay for the maintenance and upkeep and outgoings. We also find that without such an arrangement with assessee would have had to borrow funds from outsiders and financial institutions. Hence it was a prudent business decision to allow the sister concern to use of its premises. The assessee was able to reduce its losses and get better financial results. Thus the intention of the assessee was for the purpose of business and not to earn rental income. Income is liable to be assessed as business income and depreciation is allowable to the assessee - Decided in favour of assessee. Disallowance of bank margin given for guarantee confirmed as assessee did not file requisite details - Decided against assessee. Bad debt written off disallowed - Held that - The reply filed before the AO and details submitted along with letter dated 15/10/2008, clearly establish the claim of the assessee that the bad debt written off by the assessee was in respect of bills issued by the assessee to the said party. In this view of the situation, we are of the opinion that the claim of the assessee of a sum of ₹ 1,90,971/-, which is written off in the year under consideration is allowable and addition to that extent is deleted - Decided in favour of assessee.

Summary

Issues:
1. Re-opening assessment u/s. 147/148
2. Business Income or Income from House Property
3. Agency Commission
4. Bad Debt & Balances written off

Re-opening assessment u/s. 147/148:
The appeal challenged the re-opening of assessment proceedings under sections 147/148 for the assessment year 1999-2000. The appellant argued that the re-opening was done after the expiry of the prescribed time limit, and the reasons for re-opening were not provided by the assessing officer. The CIT(A) confirmed the re-assessment and the ex-parte order passed by the AO. However, Ground No.1 was not pressed and dismissed. The Tribunal held that the re-opening was not justified as it was beyond the time limit, and the appellant was not given an opportunity to be heard. Therefore, Ground No.1 was allowed.

Business Income or Income from House Property:
The dispute centered around the addition of a specific amount as income from house property. The CIT(A) confirmed the addition, but the appellant contended that no amount was chargeable under the head "Income from House Property." The appellant argued that the property was used for business purposes and not for rental income. Citing relevant case laws and documents, the appellant demonstrated that the property was utilized for business activities, and hence, the income should be taxed as business income. The Tribunal agreed with the appellant's submissions, allowed the appeal, and held that the income should be assessed as business income, permitting depreciation on the building.

Agency Commission:
The issue of disallowance of agency commission without substantiating reasons was raised. The CIT(A) and AO were criticized for not providing clear justifications for the disallowance. However, the Tribunal did not delve deeply into this issue as it was not pressed by the appellant, and hence, it was dismissed.

Bad Debt & Balances written off:
Regarding the disallowance of bad debt, the appellant argued that the amount was written off due to irrecoverability in the course of business activities. The CIT(A) upheld the disallowance, citing lack of details. The Tribunal examined the evidence submitted by the appellant, including audit reports and correspondence, and concluded that the bad debt was genuine and allowable. Consequently, the Tribunal partly allowed Ground No.4, deleting the addition related to the bad debt.