2018 (5) TMI 1894 - AT - Income Tax

Correct head of income - hiring receipts - under the head income from business or profession OR income from house property - HELD THAT - Admittedly in preceding AY as is observed from assessment order passed for AY 2007-08. A.O. in reassessment proceedings has not disputed the nature of income earned by assessee. Further for computation for year ending 31/03/11 has been placed wherein rent received from hire of equipments have been shown as income from business. Assessee has sold the building during Financial Year 2010-11 but was continuing to receive hire charges from furniture equipments etc. Thus it is clear that rent received from lease of building was independent of rent received from hire of furniture and fittings. On perusal of partnership deed it is observed that one of the object was to purchase sell and give on lease properties developed by assessee. Considering the totality of facts the intention of assessee was to continue renting furniture and fixtures to lessee which has been admitted to be income from business in the preceding assessment year by the authorities below. Following rule of consistency we do not find any infirmity in the observations of CIT(A) in treating the hiring receipt under the head income from business . Disallowance being bank charges hiring charges for generator maintenance charges security charges and depreciation - HELD THAT - Income received by assessee from hiring of equipments has to be treated as business income . It is an admitted fact that except for generator rest of the equipments have been purchased by assessee and form part of block of assets - depreciation claimed by assessee on these equipments would be allowable. In respect of the other items like maintenance charges security charges assessee is already claiming standard deduction u/s 24 at 30% which subsumes all such misc. expenses in so far as the property building is concerned under the head income from house property . We cannot appreciate the fact that these charges could be allocated to the rental income earned by assessee against hire of furniture fittings as all the maintenance charges are borne by the lessee. In so far as bank charges are concerned A.O. shall verify if it could be attributed to earning of rental income from hiring of furniture fittings. In the event the bank charges could be attributed to earning of rental income from furniture fittings the same may be allowed as business expenditure . Assessee is directed to provide all details in respect of the same to the satisfaction of AO for proper verification as per law. - Ground raised by revenue stands partly allowed for statistical purposes. Interest income - claim disallowed on the premise that the rental income earned by assessee would be treated as income from other sources - CIT (A) deleted the disallowance made by AO - HELD THAT - In our considered opinion the interest expenditure that is attributable towards the purchase of furniture fixtures and fittings should be an allowable expenses in the hands of assessee. Assessee is accordingly directed to provide the bifurcation of the interest expenses that is allocable towards the construction of building as well as towards purchase of furniture fixtures equipments and fittings. A.O. shall then consider the claim of assessee as per law. Disallowance made on account of salary and staff welfare - HELD THAT - Rental income earned by assessee from hire of furniture fittings has been allowed to be treated as business expenditure which do not require to engage any employee since all the maintenance of such furniture fixtures and fittings are being taken care by lessee as per agreements placed in the paper book. Further it is observed that assessee during the year has earned income from house property and rental income from hire of furniture fixtures being income from business. Assessee is already claiming standard deduction u/s 24 at 30% which subsumes all such misc. expenses in so far as the property building is concerned under the head income from house property . We cannot appreciate the fact that these charges could be allocated to the rental income earned by assessee against hire of furniture fittings as all the maintenance charges are borne by the lessee. Treatment of loan as a liability of the firm - HELD THAT - It is observed that the loan has been taken by assessee for the purposes of construction which has been admittedly obtained by providing security of family members. Admittedly the entire fund has been utilised for the purposes of construction of building as well as acquiring furniture aid fittings for the purpose of earning rental income and consistently assessee has been reflecting the said loan in the balance sheet in the preceding A.Ys which has not been disputed by revenue. Further assessee declared in its hands the rental income received from building as income from house property and rent received from hiring of furniture and fittings as income from business . No reason to interfere with the observations of CIT(A). Accordingly this ground raised by revenue stands dismissed. Difference in the cost of construction - DR submitted that there was a difference in the cost of construction shown by the appellant in the books of accounts and as determined by the DVO - CIT-A deleted addition - HELD THAT - We agree with the submissions advanced by AR that AO has not found any fault in the bills and vouchers produced by assessee in support of the construction cost but has merely relied upon the DVO s report. There has been neither any instance placed on record regarding any infirmity in the books of accounts nor there is any observations regarding the same by her. No reason to differ with the observations of CIT (A) and accordingly the same is upheld. Depreciation disallowance - HELD THAT - The right of the assessee to relief is not restricted to the plea raised by him. It is thus apparent that the AO is under an obligation to bring the correct amount of income to tax. If the appellant has made a wrong claim it is the duty of the Assessing Officer to allow the correct claim as per law as a deduction. The decision of the Hon ble Supreme Court in the case of Goetze 2006 (3) TMI 75 - SUPREME COURT is not applicable in the case of the appellant since it is not making a new claim but is revising correctly the claim it has already made in the return of income. Therefore the AO is directed to allow the correct amount of depreciation on furniture and fixtures. No proper verification in respect of the genuineness of the transactions - HELD THAT - We are in agreement with the submissions advanced by both the sides that this issue needs to be revisited by Assessing Officer and a thorough verification is to be conducted in this regard. Assessee is therefore directed to provide all relevant information/produce relevant personnel for purposes of examination in respect of the transactions with Ishan Constructions and Ravinder Nath Dharam to the satisfaction of Ld. AO. Assessee shall also produce all the relevant companies from home sale and purchase of road safety equipments have been effectuated. In respect of the same assessee is directed to produce all the records/registers/bills and vouchers/Ledger accounts. AO shall then verify all the materials filed by assessee as per law and establish the genuineness and validity of the transactions in order to arrive at correct decision.

Summary

Issues Involved:
1. Treatment of hiring receipts as 'income from business or profession' versus 'income from house property.'
2. Deletion of disallowances related to bank charges, generator hiring charges, maintenance charges, security charges, and depreciation.
3. Deletion of disallowance on account of interest paid.
4. Deletion of disallowance made on account of salary and staff welfare.
5. Treatment of a loan as a liability of the firm versus that of the partners.
6. Deletion of addition on account of difference in cost of construction.
7. Allowance of depreciation at a higher amount than claimed.

Issue-wise Detailed Analysis:

1. Treatment of Hiring Receipts:
The Tribunal examined whether the hiring receipts should be treated as 'income from business or profession' or 'income from house property.' The assessee had separate agreements for letting out the building and hiring of furniture and equipment. The Tribunal upheld the CIT(A)'s decision to treat the hiring receipts as 'income from business,' relying on the principle of consistency and the Supreme Court's ruling in Chennai Properties & Investments Ltd. vs. CIT. The Tribunal found that the assessee's intention and separate agreements justified treating the hiring receipts as business income.

2. Deletion of Disallowances Related to Various Charges:
The Tribunal addressed the deletion of disallowances amounting to ?22,85,644/- related to bank charges, generator hiring charges, maintenance charges, security charges, and depreciation. It was held that depreciation on equipment used for business was allowable. However, maintenance and security charges were to be borne by the lessee and could not be allocated to rental income from hiring furniture and fittings. The Tribunal directed the AO to verify if bank charges could be attributed to earning rental income from furniture fittings and allow them as business expenditure if applicable.

3. Deletion of Disallowance on Account of Interest Paid:
The Tribunal examined the deletion of disallowance of ?44,14,909/- on account of interest paid. The assessee had bifurcated the interest into amounts allocable to the building and furniture/equipment. The Tribunal directed the AO to verify the bifurcation provided by the assessee and allow interest expenditure attributable to the purchase of furniture, fixtures, and equipment as business expenditure.

4. Deletion of Disallowance Made on Account of Salary and Staff Welfare:
The Tribunal addressed the deletion of disallowance made on account of salary and staff welfare. It was held that since the rental income from hiring furniture and fittings was treated as business income, these expenses could not be allocated to rental income as all maintenance was borne by the lessee. Thus, the Tribunal allowed the revenue's ground on this issue.

5. Treatment of Loan as Liability of the Firm:
The Tribunal examined the treatment of a ?2.60 crore loan as a liability of the firm instead of the partners. The CIT(A) had treated the loan as a liability of the firm, as it was reflected in the balance sheet and used for construction and acquiring furniture/equipment. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

6. Deletion of Addition on Account of Difference in Cost of Construction:
The Tribunal addressed the deletion of an addition of ?1,92,670/- on account of the difference in cost of construction. The AO had relied on a DVO report, but the assessee had maintained regular books of accounts with no faults found. The Tribunal upheld the CIT(A)'s decision to delete the addition, as the AO had not found any defects in the books of accounts.

7. Allowance of Depreciation at a Higher Amount:
The Tribunal examined the allowance of depreciation at ?14,97,977/- instead of ?9,51,526/-. The CIT(A) had allowed the correct amount of depreciation, noting that the assessee had made a clerical mistake in the return. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

Assessment Year 2009-10:
The Tribunal noted that the issues for AY 2009-10 were identical to those for AY 2008-09. Following the observations and decisions made for AY 2008-09, the Tribunal partly allowed the grounds raised by the revenue for AY 2009-10.

Assessment Year 2010-11:
The Tribunal noted that grounds 4, 5, and 6 for AY 2010-11 were covered by the grounds for AY 2008-09 and AY 2009-10. The Tribunal partly allowed ground 6 and dismissed grounds 4 and 5. For grounds 1, 2, and 3, the Tribunal directed the AO to re-verify the genuineness of the transactions with Ishan Constructions and Ravinder Nath Dharam, and to conduct a thorough verification of the records provided by the assessee.

Conclusion:
The Tribunal's decision resulted in the appeals for the assessment years 2008-09, 2009-10, and 2010-11 being partly allowed, with specific directions for re-verification and allowance of certain expenditures as per law.