2018 (4) TMI 1055 - AT - Income Tax

Treating the rental as business receipts - assessee has been showing income derived from the warehouse under the head of Income from Business & Profession - Held that - The prime object in the case before us was to provide the commercial services as discussed. No reason to interfere in the judgment of CIT(A) and accordingly conclude that the rental income in the aforesaid facts and circumstances should be treated as business income. Hence, the ground of appeal of revenue is dismissed. Addition by estimating the profit after rejection of books of accounts of the assessee - Held that - Once the books of accounts are rejected by the AO then the profit has to be determined on estimated basis. Hence, in our considered view the impugned issue needs to be re-examined by the Ld. CIT(A) de-novo and in accordance with provision of law. Thus, the ground of appeal filed by the Revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Treatment of rental income as business income.
2. Deletion of the estimation of business profits after rejection of books of account.
3. General grounds raised by the Revenue.

Issue-Wise Detailed Analysis:

1. Treatment of Rental Income as Business Income:

The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in treating rental income of ?2.31 crores as business receipts. The Assessing Officer (AO) argued that this income should be classified as "Income from House Property" based on the fact that the contracting tea company paid the proceeds after deducting Tax Deducted at Source (TDS) under Section 194-I, and referenced Supreme Court judgments in Shambhu Investment Pvt. Ltd vs CIT and CIT Poddar Cements.

The CIT(A) ruled that the income should be treated as business income, emphasizing that the assessee provided complex and composite services including packing, blending, storing, and transporting, which could not be rendered without the land and warehouses. The CIT(A) cited the principle of consistency, noting that in previous and subsequent assessment years, the income was assessed as business income. The CIT(A) referenced similar cases such as Dutta Properties Pvt. Ltd. and CIT vs. NDR Warehousing Pvt. Ltd., which supported treating warehousing activities as business income.

The Tribunal upheld the CIT(A)'s decision, noting that the predominant object was to provide services rather than merely earning rental income. The Tribunal emphasized the principle of consistency, referencing the Supreme Court's judgment in Radhasoami Satsang vs. Commissioner of Income Tax, which states that in the absence of any material change in facts, the Revenue should not take a different view in subsequent years. The Tribunal also cited the case of ITO vs. Tejmal Bhai & Co., where similar warehousing income was treated as business income.

2. Deletion of the Estimation of Business Profits after Rejection of Books of Account:

The AO rejected the books of accounts under Section 145(3), considering them fudged and supported by self-made vouchers, and estimated the income at 20% of the gross revenue. The CIT(A) upheld the rejection of the books of accounts but found no merit in the AO's estimation of income, as the AO did not provide any comparable cases or material evidence to support the estimation.

The Tribunal noted the contradictory findings of the CIT(A), who upheld the rejection of the books of accounts but directed the AO to assess the entire gross receipts as business income and allow deductions under Sections 28 to 43 of the Income Tax Act. The Tribunal found ambiguity in the CIT(A)'s judgment and remanded the issue back to the CIT(A) for re-examination de novo and in accordance with the provisions of law.

3. General Grounds Raised by the Revenue:

The last grounds raised by the Revenue were general in nature and did not call for any separate adjudication.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to treat the rental income as business income, emphasizing the principle of consistency and the nature of services provided by the assessee. However, the Tribunal remanded the issue of the estimation of business profits back to the CIT(A) for re-examination due to contradictory findings. The general grounds raised by the Revenue were not separately adjudicated. The appeal was partly allowed for statistical purposes.