2018 (9) TMI 780 - AT - Income Tax

Rental Income received from letting out of factory Premises situated in government notified industrial area - Income from house property or busniss income - Held that - Assessee s memorandum and Articles of Association clearly indicates that assessee is allowed to carry on business of renting, lease, sublease being of residential and commercial or industrial premises on behalf of assessee itself or on behalf of Central or state government or any local authority in India. Assessee has let out on rental basis the portion which is not occupied by assessee for its business purposes. It is also very clear that assessee had received land from State Government of Haryana for commercial use, which has not been disputed by authorities below. Though we agree with Ld.DR that principle of res judicata do not apply, but consistency should be maintained and taxing authorities should not deviate from its earlier decision, unless there is justifiable material on record calling for such deviation. Thus in our considered view assessee had granted a portion of the building on lease to M/s.ALP Plastics Pvt. Ltd., and M/s.Standard Gold Electricals Pvt. Ltd to commercially exploit the asset, which has to be assessed as business income. - Decided in favour of assessee. Addition u/s 68 as received from undisclosed sources - AO disallowed amount received by assessee towards job work, since the Principal failed to deduct TDS from payments made to assessee, in view of provisions of section 194C - CIT (A) restricting allowability of business expenses to the extent of 50% - Held that - Admittedly for the year under consideration, amount credited in books of accounts are income in hands of assessee, which has been declared by assessee under the head, Income from Business . In fact, view formed by authorities below is based on presumption that assessee is the owner of the said amount credited in cash. Further authorities below rejected submissions of assessee, without making any enquiries in relation to nature of income received on the basis of preceding assessment years. We therefore are of considered opinion that the addition made by Ld.AO which is sustained by Ld. CIT (A) needs proper verification by Ld.AO. Merely on surmises and conjunctures no addition can be made u/s 68 of the Act, when assessee himself is declaring the monies received in cash as its Business Income. It is observed from Ld.AO s order that assessing officer has not rejected books of accounts, but has disallowed expenses since vouchers did not appear to be authentic. No further enquiries were conducted by Ld.A.O. in this regard for rejecting entire expenses claimed by assessee. Ld.CIT (A) did not dispute business activity but restricted disallowance to 50% without any basis. There are certain expenses like administrative expenses, directors sitting fees, audit fees, depreciation, office repairs and maintenance expenses, legal expenses, factory running expenses, telephone expenses and miscellaneous expenses which cannot be disallowed as these are necessary to be incurred for the purposes of business. As we have in the preceding paragraph already held the rent received from factory premises to be Income from Business , factory running expenses and office repairs and maintenance expenses are eligible expenditure in the hands of assessee. We accordingly direct Ld.AO to compute the disallowance of expenses in respect of the other items. Addition on account of interest paid on loans - Held that - For purposes of allowability of an expenditure under section 37(1) burden lies upon assessee to establish that loans have been expended wholly and exclusively for purposes of business or profession only. In the facts of present case, assessee has not demonstrated in any manner whatsoever, regarding alleged purchase of land out of loans taken from related parties, on which interest of ₹ 3,43,693/- has been paid. Merely by submitting that amount has been utilised for purposes of business, do not support claim of assessee. We therefore do not find any infirmity in decision of Ld. CIT (A) in disallowing interest expenditure. - decided against assessee

Issues Involved:
1. Treatment of Rental Income
2. Addition of ?15,23,025/- as Income from House Property
3. Taxation of Job Work Receipts of ?2,50,000/- under Section 68
4. Disallowance of Business Expenditure
5. Disallowance of Interest Paid on Loans
6. Disallowance under Section 14A read with Rule 8D
7. Appreciation of Evidence by CIT(A)

Issue-wise Detailed Analysis:

1. Treatment of Rental Income:
The assessee contended that rental income from letting out factory premises should be assessed under "Income from Business & Profession" as per Section 28 of the IT Act, 1961, instead of "Income from House Property" under Section 22. The Tribunal noted that in preceding years, such rental income was consistently assessed as business income. The lease agreements and correspondence with the Haryana State Industrial and Infrastructure Development Corporation Ltd. supported the assessee's claim. The Tribunal emphasized consistency and ruled that the rental income should be treated as business income. Thus, Grounds No. 1 and 2 were allowed.

2. Addition of ?15,23,025/- as Income from House Property:
The Tribunal observed that the assessee had let out a significant portion of its factory premises for commercial exploitation, which had been assessed as business income in previous years. Based on the evidence and the principle of consistency, the Tribunal ruled that the rental income should be assessed as business income, thereby allowing the related ground.

3. Taxation of Job Work Receipts of ?2,50,000/- under Section 68:
The assessee argued that job work receipts should be taxed as business income, not as income from undisclosed sources under Section 68. The Tribunal found that the assessee had consistently declared job work income as business income in previous years. The Tribunal directed the Assessing Officer (AO) to verify the nature of the income and the evidence provided. Thus, Ground No. 3 was allowed for statistical purposes.

4. Disallowance of Business Expenditure:
The AO disallowed 50% of the business expenditure without rejecting the books of accounts. The Tribunal noted that the AO did not reject the books but disallowed expenses due to lack of authentic vouchers. The Tribunal found that certain expenses were necessary for business purposes and directed the AO to compute the disallowance of expenses properly. Ground No. 4 was set aside for proper verification.

5. Disallowance of Interest Paid on Loans:
The assessee claimed interest on loans as business expenditure. The AO disallowed the interest, arguing that the loans were not used for business purposes. The Tribunal upheld the AO's decision, noting that the assessee failed to demonstrate the utilization of loans for business purposes. Thus, the ground related to the disallowance of interest was dismissed.

6. Disallowance under Section 14A read with Rule 8D:
The assessee did not press this ground during the proceedings. Therefore, the Tribunal dismissed this ground as not pressed.

7. Appreciation of Evidence by CIT(A):
The Tribunal observed that the CIT(A) did not properly appreciate the evidence furnished by the assessee. The Tribunal directed the AO to verify the nature of income and expenses in light of the evidence provided.

Conclusion:
The appeal was partly allowed. The Tribunal ruled in favor of the assessee on the treatment of rental income and directed proper verification for job work receipts and business expenditure. However, the disallowance of interest on loans was upheld, and the ground related to disallowance under Section 14A was dismissed as not pressed.

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