2018 (3) TMI 1568 - AT - Income Tax

Reopening of assessment - disallowance of diesel expenditure - Held that - AO in the assessment completed u./s 143(3) had disallowed 1/3rd of the total diesel expenditure for the reason that there was no confirmation from the tenant for incurring the diesel expenses. In the reassessment completed u/s 143(3) r.w.s. 147, 2/3rd of the diesel expenditure, which was allowed in the assessment completed u/s 143(3) of the I.T.Act, was disallowed. The assessee, on our directions, have now produced the confirmation of the tenant stating therein they have paid the rent minus the diesel expenses incurred by it. We notice that the crucial supplementary agreement dated 15.07.2008 was not produced before the A.O. Since, confirmation letter now produced before us and supplementary agreement was not before the A.O., in the interest of justice and equity, the matter needs to be examined afresh by the A.O. The A.O. shall dispose of the matter as expeditiously as possible, after affording a reasonable opportunity of hearing the assessee. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
- Disallowance of diesel expenses claimed as deduction
- Interpretation of lease agreement terms regarding expenses
- Examination of supplementary agreement between landlord and tenant
- Admissibility of diesel expenses as per Income Tax Act

Analysis:
The case involves appeals by the Revenue against two orders of the Commissioner of Income Tax (Appeals) concerning the assessment year 2009-2010. The main issue raised is the disallowance of diesel expenses claimed by the assessee as a deduction. The Assessing Officer initially restricted the allowance of diesel expenditure to 2/3rd of the claim, citing lack of confirmation from the tenant. Subsequently, upon reassessment, the entire diesel expenditure claimed was disallowed, leading to the appeals. The CIT(A) allowed the deduction, emphasizing a supplementary agreement between the parties that specified the deduction of expenses incurred by the tenant for generating electricity using a diesel generator. The CIT(A) concluded that the diesel expenditure was an allowable deduction, considering the specific terms of the supplementary agreement.

The Tribunal observed that while diesel expenses are generally not admissible under sections 23 to 27 of the Income Tax Act, the peculiar circumstances of the case required a closer examination. The crucial point of contention was whether the net rental receipt of the assessee was only the amount reduced by the diesel expenditure incurred by the tenant, as per the supplementary agreement. The Tribunal noted that this aspect had not been adequately addressed by the CIT(A) or the Assessing Officer. The Tribunal directed the Assessing Officer to re-examine the matter, considering the confirmation letter from the tenant and the supplementary agreement, which were not presented before the A.O. The Tribunal emphasized the importance of a fresh examination of the case to ensure justice and equity.

In conclusion, the appeals filed by the Revenue were allowed for statistical purposes, indicating that the matter needed further examination by the Assessing Officer. The Tribunal's decision highlighted the significance of verifying the actual impact of the supplementary agreement on the rental income received by the assessee, emphasizing the need for a thorough review of the case based on all relevant documents and agreements.