2018 (4) TMI 389 - AT - Income Tax

Expenditure allowable u/s. 57 - rental income from sub leased the property taxed under the head income from other sources - claim of depreciation and corporate expenses etc. - Held that - A.O. has discussed the applicability of this sub section associated with section 57 of the Act. The AO has given the finding that the expenses claimed have no direct nexus with the earning of the service charges. Such expenses have laid out or expended wholly and exclusively for the purpose of making or earning service charges. The AO has rightly concluded the allowable expenses on proportionate basis. The appellant company has not brought any specific evidence or arguments, which, forces to interfere with the conclusion of the AO. It is, therefore, held that the A.O. is justified in allowing only those expenditure which are allowable u/s.57 of the Act. Appeal filed by the appellant company on this issue is dismissed u/s 250 r.w.s. 251 of the Act and the order of the AO is upheld.

Issues Involved:
1. Assessment of income as 'income from house property' versus 'income from business'.
2. Allowability of business expenditure claimed by the assessee.
3. Correct application of ITAT's previous orders and Supreme Court judgments.
4. Initiation of penalty proceedings.

Detailed Analysis:

1. Assessment of Income as 'Income from House Property' versus 'Income from Business':
The primary issue revolves around the classification of income earned from sub-letting a property and providing certain services. The assessee claimed that the income should be considered 'income from business', while the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) classified it as 'income from house property'. The ITAT upheld the authorities' decision, stating, "Since the assessee is deemed owner of the property and had received rental income, the same has been rightly held assessable as income from house property." The ITAT noted that the assessee simply sub-leased the property to enjoy rental income without engaging in commercial exploitation or organized activities.

2. Allowability of Business Expenditure Claimed by the Assessee:
The assessee also claimed deductions for business expenditures. The ITAT directed that service charges should be assessed as 'income from other sources' and allowed deductions under section 57 of the Income Tax Act. However, the AO disallowed certain expenses, including depreciation and corporate expenses, as they did not meet the criteria under section 57. The CIT(A) upheld this decision, stating, "The AO has rightly concluded the allowable expenses on proportionate basis. The appellant company has not brought any specific evidence or arguments, which forces me to interfere with the conclusion of the AO."

3. Correct Application of ITAT's Previous Orders and Supreme Court Judgments:
The assessee argued that the authorities did not correctly follow the ITAT's decision in its own case for the assessment year 2009-10. However, the ITAT dismissed this claim, emphasizing that the authorities had adhered to the binding order for the assessment years 2003-04 to 2008-09. The ITAT clarified, "The Tribunal has well considered the proposition of law... and held that the income earned by the assessee from the sub-lease of the premises was simple case of letting out of the property and thus income therefrom was assessable under the head 'Income from the house property'."

4. Initiation of Penalty Proceedings:
The assessee contended that initiating penalty proceedings was erroneous given the highly litigated nature of the case. However, this issue was not elaborately discussed in the judgment, and the primary focus remained on the classification of income and the allowability of expenses.

Conclusion:
The ITAT dismissed the appeals by the assessee, upholding the AO and CIT(A)'s decisions to classify the rental income as 'income from house property' and service charges as 'income from other sources'. The ITAT confirmed that the authorities correctly followed its previous orders and the relevant Supreme Court judgments. The order emphasized that the AO was justified in disallowing certain expenses that did not meet the criteria under section 57 of the Income Tax Act.

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