2011 (7) TMI 1328 - AT - Income Tax

Summary

Issues Involved:
The issues involved in this case are:
1. Whether the income from sub-letting should be assessed under the head "income from house property" or "income from other sources" for the assessment year 2007-08.
2. Whether the addition made on disallowance u/s 40A(2)(b) should be upheld for the assessment year 2007-08.

Issue 1:
In the assessment year 2007-08, the question arose regarding the assessment of income from sub-letting under the head "income from house property" or "income from other sources." The Assessing Officer (AO) treated the income from sub-letting under "income from other sources" based on the stand taken in the previous assessment year 2005-06. However, the CIT(A) directed the AO to follow the decision of the Tribunal which held that the appellant was a deemed owner of the premises entitled to declare the rental income as Income from House Property. The Tribunal upheld the CIT(A)'s order, stating that the filing of an appeal before the High Court against the order of the Tribunal for A.Y 2005-06 would not be a bar in following the Tribunal's decision. Therefore, the order of the CIT(A) was upheld, and Ground No.1 raised by the revenue was dismissed.

Issue 2:
Regarding the addition made on disallowance u/s 40A(2)(b), the AO disallowed the excess rent paid compared to the rent received from Corporation Bank, invoking the provisions of Sec.40A(2)(b) of the Act. The Assessee contended that the rent increase was justified based on agreements and market rates. The CIT(A) found that the AO had not considered relevant facts and had committed factual errors. The CIT(A) deleted the addition, following the order of CIT(A) for A.Y 2005-06, where similar issues were discussed. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance made by the AO ignoring vital factors could not be sustained. Therefore, the order of the CIT(A) was confirmed, and Ground No.2 raised by the revenue was dismissed.

In conclusion, the appeal of the revenue was dismissed by the Tribunal based on the above considerations.