2012 (2) TMI 673 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of income from letting out industrial park buildings.
2. Allowability of expenses towards valuation of real estate portfolio and Initial Public Offer (IPO) as revenue expenditure.

Summary:

Issue 1: Treatment of Income from Letting Out Industrial Park Buildings
The Revenue's grievance was that the CIT(A) erred in directing the Assessing Officer (AO) to treat the income derived from letting out industrial park buildings as 'income from business' instead of 'income from house property.' Both parties agreed that this issue was covered by a consolidated order of the Tribunal for previous assessment years (2002-03 to 2007-08), where the matter was restored to the AO for proper verification. The Tribunal held that the nature of the income should be determined based on whether the letting out of the building was the predominant activity or if it was incidental to the operation of an industrial park. The Tribunal directed the AO to re-adjudicate the issue afresh for the assessment year 2008-09, following the same principles and allowing sufficient opportunity for hearing to the assessee.

Issue 2: Allowability of Expenses Towards Valuation of Real Estate Portfolio and IPO
The Revenue contended that the CIT(A) erred in allowing the expenses claimed by the assessee towards the valuation of the real estate portfolio and consultancy charges for an IPO as revenue expenditure. The AO had disallowed these expenses, considering them capital in nature. The CIT(A) deleted the disallowance, noting that the expenses were incurred during the course of business and were not for any new project. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenses were for internal valuation and consultancy for a proposed IPO, which did not result in any enduring benefit or acquisition of a capital asset. The Tribunal found no material to suggest that the expenses were for non-business purposes or for a different new project. The Tribunal also referred to relevant case laws supporting the view that such expenses, incurred out of commercial expediency, should be treated as revenue expenditure.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes on the first issue, directing the AO to re-adjudicate the matter. On the second issue, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to treat the expenses as revenue expenditure. The appeal of the Revenue was partly allowed for statistical purposes.