2016 (6) TMI 131 - AT - Income Tax

Income from lease rent - assessability of income - taxable under the head Income from other sources OR Income from Business and Profession - admission of additional evidence - Held that - CIT(A) has taken note of the partnership deed executed between the parties. Merely because the document was not filed before the Assessing Officer in the original assessment proceedings but was filed before the CIT(A) during the course of appellate proceedings by way of additional evidence, the provisions of the Act provided that under certain circumstances, the CIT(A) can admit the same as evidence and decide the issue accordingly. Here the CIT(A) has decided the issue after referring to clauses of the partnership deed and accordingly, we hold that once the same has been considered by the CIT(A) elaborately, the same should have been admitted as additional evidence for deciding the issue in the present appeal for dispense of justice. Merely because a document was not filed before the Assessing Officer, the same cannot be rejected on surmises and in the totality of the above said facts and circumstances, we consider the issue in the light of deliberations of CIT(A) on the said so called additional evidence, since the powers of CIT(A) are co-terminus with the Assessing Officer. Accordingly, we hold that the income received by the assessee merits to be assessed in its hands as income from business and corollary to the same, brought forward losses on account of depreciation would form part of current depreciation in the hands of assessee and the same merits to be adjusted against income of the current year and in case of any balance, merits to be carried forward to the succeeding year. Lease rent received by the assessee from M/s. Deccan Bottling & Distilling Industries Ltd. - the said income is to be taxed as income from business and not income from other sources. - Decided in favour of assessee Disallowance under section 43B - Held that - Since the income is assessed as income from business, relevant provisions of section 43B of the Act are attracted. The Assessing Officer is directed to verify the same and decide the issue.

Issues Involved:
1. Treatment of lease rent received by the assessee.
2. Set-off of brought forward depreciation.
3. Admission of additional evidence (partnership deed).
4. Characterization of partnership deed as a sham document.
5. Disallowance under section 43B of the Income Tax Act.

Detailed Analysis:

1. Treatment of Lease Rent Received by the Assessee:
The primary issue was whether the lease rent received by the assessee from M/s. Shriram Jawahar Shetakari Sahakari Sakhar Udyog (?3,06,63,400) and M/s. Deccan Bottling & Distilling Industries Ltd. (?1,19,10,041) should be classified as "Income from Business and Profession" or "Income from Other Sources." The assessee, a cooperative society, had leased out its sugar factory and distillery unit, declaring the receipts as business income. However, the Assessing Officer (AO) treated the lease rent as income from other sources, allowing depreciation only to the extent of lease rent income under section 57(ii) of the Act. The CIT(A) upheld this view, stating the partnership deed was a sham and a colorable device. The Tribunal, however, held that the assessee was engaged in business activities, considering the partnership formed under section 20 of the Maharashtra Cooperative Societies Act. The Tribunal concluded that the income received was business income, not income from other sources.

2. Set-off of Brought Forward Depreciation:
The assessee claimed set-off of brought forward depreciation of ?8,49,07,570 against the income from capital gains. The AO denied this set-off, stating it was not allowable under section 72 of the Act. The CIT(A) also denied the set-off. The Tribunal, however, allowed the set-off of brought forward depreciation, treating it as part of current depreciation under section 32(2) of the Act, and directed that the same should be adjusted against the income of the current year.

3. Admission of Additional Evidence (Partnership Deed):
The assessee filed the partnership deed as additional evidence before the CIT(A), which was initially not admitted. However, the CIT(A) later discussed the terms of the partnership deed but concluded it was a sham. The Tribunal admitted the partnership deed as additional evidence, noting that the CIT(A) had already considered it in detail. The Tribunal emphasized that the partnership deed should be admitted to ensure justice and fairness.

4. Characterization of Partnership Deed as a Sham Document:
The CIT(A) characterized the partnership deed as a sham and a colorable device, stating it was against the basic principles of partnership since the assessee was not sharing profits or losses. The Tribunal disagreed, stating that the partnership was formed under the Maharashtra Cooperative Societies Act, which does not require compliance with the Indian Partnership Act, 1932. The Tribunal recognized the partnership as valid, emphasizing the business risks and responsibilities undertaken by the assessee.

5. Disallowance under Section 43B of the Income Tax Act:
The assessee contested the disallowance of ?12,30,068 under section 43B, arguing that the provisions of section 43B do not apply to income from other sources. Since the Tribunal held that the income was business income, it directed the AO to verify and decide the issue under the relevant provisions of section 43B.

Conclusion:
The Tribunal allowed the appeal partly, recognizing the lease rent as business income, permitting the set-off of brought forward depreciation, admitting the partnership deed as additional evidence, and directing verification under section 43B. The Stay Application filed by the assessee was dismissed.

Order Pronounced on 25th April 2016.

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