2016 (7) TMI 459 - AT - Income Tax

Business Services Charges for providing Business Service Centre - income from house property or Business Income - Held that - There is no material to establish that the fact-situation in other assessment years brought out by the assessee is any way different from the instant assessment year. Quite clearly, the Assessing Officer has erroneously treated the income from business service centre as income from house property without bringing on record any fact or law situation, which was inconsistent from the other years. Even before us, no cogent change in facts or law has been brought out by the Revenue, which would justify the departure from the earlier stand of treating the income from providing business service centre facility as income from business income. Therefore, on these aspect we set-aside the order of CIT(A) and direct the Assessing Officer to treat the income earned by the assessee from business service centre as income from business in conformity with his stand for the other assessment years. Thus, assessee succeeds on this aspect of the controversy. - Decided in favour of assessee Disallowance u/s 14A - Held that - The case set-up by the assessee is based on the provisions of section 14A(2) of the Act, which requires the Assessing Officer to record a satisfaction about the correctness of the claim by the assessee before proceeding to disallow any expenditure, which according to him has been incurred in relation to earning exempt income. n the present case, we find from the discussion in the assessment order that there is no satisfaction recorded by the Assessing Officer about the correctness of the claim of the assessee and he has proceeded to re-compute the disallowance under section14A of the Act by applying the provisions of Rule 8D of Income Tax Rules, 1962 in a mechanical manner. Therefore, in our view the action of the Assessing Officer is lacking in jurisdiction and deserves to be set aside. We hold so. As a consequence, we set-aside the order of the CIT(A) and direct the Assessing Officer to retain the disallowance made by the assessee in his return of income and delete the balance. - Decided partly in favour of assessee

Summary

Issues:
1. Treatment of Business Service Charges as income from House Property
2. Disallowance under section 14A of the Income Tax Act

Issue 1: Treatment of Business Service Charges as income from House Property

The appellant, a company engaged in providing business infrastructure facilities, contested the treatment of Business Service Charges as income from House Property by the Assessing Officer and affirmed by the CIT(A). The appellant argued that the income should be classified as income from business and profession under section 28 of the Income Tax Act. The Assessing Officer based the classification on the exploitation of property, but the appellant emphasized the nature of services provided, distinguishing between letting out property and running a commercial business center. The ITAT observed that the Assessing Officer's approach was untenable, considering the activities carried out by the appellant. The ITAT noted that in previous years, the income was consistently treated as income from business, and no new facts or laws justified the departure from this classification. Consequently, the ITAT directed the Assessing Officer to treat the income from the business service center as income from business, in line with previous assessments.

Issue 2: Disallowance under section 14A of the Income Tax Act

Regarding the disallowance under section 14A, the appellant had disallowed a portion of interest expenditure related to exempt dividend income. The Assessing Officer increased the disallowance by considering administrative expenses, which the appellant contested, stating that no administrative expenses were incurred. The CIT(A) upheld the enhanced disallowance. The ITAT found that the Assessing Officer failed to record satisfaction regarding the correctness of the appellant's claim, as required by section 14A(2) of the Act. Citing the judgment in Maxopp Investment Ltd. vs C.I.T., the ITAT held that the Assessing Officer's mechanical application of Rule 8D without proper satisfaction lacked jurisdiction. Consequently, the ITAT set aside the CIT(A)'s order and directed the Assessing Officer to retain the disallowance made by the appellant and delete the excess disallowance. Thus, the appellant partly succeeded on this issue.

In conclusion, the ITAT partly allowed the appeal related to the treatment of Business Service Charges and dismissed the appeal concerning the interest income issue. The judgments were pronounced on 30/06/2016 by the ITAT Mumbai.