2018 (9) TMI 1009 - AT - Income Tax

Assessment of lease rental income - business income OR income from property - Held that - The assessee is not rendering any services to the lessee except leasing out of the land and the constructed property thereon. In the decisions relied upon by the assessee the income from letting out of the I.T. Parks has been treated as income from business because the assessees therein, have not only let out the property, but also have rendered services for the maintenance of the same for effective carrying on of the business of such lessees. In the case before us, the lessees has taken over the possession of the property and thereafter had to conduct its business without any assistance from the assessee. Therefore, the income of the assessee is only from letting out of the property and thus, we agree with the findings of the CIT (A) that the income has to be treated as income from house property and not as business income. Disallowance of interest - interest claimed as business expenditure as the loan taken from SBI, Balanagar branch was utilized for the purpose of business - Held that - oan has been taken from SBI Balanagar Branch for the purpose of business and therefore, it has to be allowed as business expenditure. Irrespective of the nature of the lease rental income, the assessee has utilized the said loan for the business purposes of the assessee which is not disputed by the Revenue. Of course, the said amount cannot be set off from the income from house property as claimed by the assessee but the AO/CIT (A) can set off the same from the business income if any, of the assessee. AO is directed to allow the same as business expenditure. We find that the security for the loan, is the lease rental income, but it does not mean that it can be set off against the rental income. Depreciation disallowed on the building which is leased to M/s BHEL Gas Turbines Services Ltd. - Held that - As already held that the income from lease rental is to be treated as income from house property, the building cannot be treated as a business asset and therefore the depreciation thereon cannot be allowed. Ground rejected. Notional interest at the rate of 12% added on the advances made to sister concerns - Held that - case of CIT vs. Dalmiya Cements Ltd 2001 (9) TMI 48 - DELHI HIGH COURT wherein held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. We find that neither the AO nor the CIT (A) have verified this claim of the assessee, except for holding that the assessee has not filed the necessary evidence. Therefore, we deem it fit and proper to remand the issue to the file of the AO for denovo consideration. Addition on investments as made in unquoted shares for acquiring the said company - Held that - Assessee has failed to produce any evidence before us to demonstrate that the advances were made to various parties for the purpose of business. Therefore, the order of the CIT (A) on this issue is confirmed. Addition u/s 68 - Held that - Assessee has filed confirmation letters before the CIT (A) for which remand report was called for. AO has observed that the assessee could not produce the parties for establishing the genuineness and creditworthiness of the transaction. As the assessee submitted that the assessee has furnished confirmation letters as required by the AO and as observed by him in the remand report and therefore, the additions could not have been confirmed. Copies of the confirmation letters were also filed before us and we find that both the parties are allegedly agriculturists and with no PAN Nos. Therefore, the creditworthiness of the said parties could not be provided by the assessee. - Assessee s appeal is partly allowed.

Issues involved:
1. Treatment of lease rental income
2. Disallowance of interest claimed as business expenditure
3. Disallowance of depreciation on the building
4. Addition of notional interest on advances made to sister concerns
5. Addition of notional interest on investments in unquoted shares
6. Addition of notional interest on advances made to various parties
7. Addition made under section 68 despite filing confirmation letters

Analysis:

1. Treatment of lease rental income:
The Assessing Officer (AO) treated the lease rental income as "income from house property" instead of business income, leading to disallowances. The Appellate Tribunal upheld this decision, stating that the income was solely from letting out the property, not from providing additional services. The Tribunal found no grounds to treat it as business income, rejecting the appeal on this ground.

2. Disallowance of interest claimed as business expenditure:
The AO disallowed interest claimed as business expenditure, but the Tribunal directed to allow it as business expenditure since the loan was utilized for business purposes. The security for the loan being the lease rental income did not justify setting it off against the rental income. This ground was treated as allowed for statistical purposes.

3. Disallowance of depreciation on the building:
As the income from lease rental was treated as "income from house property," the depreciation on the building was disallowed. The Tribunal rejected this ground as the building could not be considered a business asset in this context.

4. Addition of notional interest on advances made to sister concerns:
The AO added notional interest on advances made to sister concerns, treating them as loans. The Tribunal remanded the issue for further consideration as the nature of these advances was disputed by the assessee.

5. Addition of notional interest on investments in unquoted shares:
The AO added notional interest on investments in unquoted shares, which was upheld by the Tribunal due to lack of evidence supporting the claim that these were trade advances. The ground was treated as allowed for statistical purposes.

6. Addition of notional interest on advances made to various parties:
The Tribunal confirmed the addition of notional interest on advances made to various parties as the assessee failed to provide evidence that these advances were for business purposes.

7. Addition made under section 68 despite filing confirmation letters:
The Tribunal upheld the addition made under section 68, as the creditworthiness of the parties could not be established due to lack of PAN numbers. Confirmation letters were filed but deemed insufficient to prove the genuineness of the transactions, resulting in the confirmation of the addition.

In conclusion, the Tribunal partly allowed the assessee's appeal, addressing various grounds and confirming some additions while remanding others for further consideration.

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