1984 (8) TMI 123 - AT - Income Tax

Summary

Issues:
1. Reduction in addition in trading accounts by CIT(A).
2. Assessment of rental income from factory sheds.

Analysis:

Issue 1: Reduction in addition in trading accounts by CIT(A)
The appeal was filed by the revenue against the CIT(A)'s decision to reduce the addition in the trading accounts from Rs. 1,92,944 to Rs. 31,120. The assessee, a registered firm engaged in the business of manufacturing and selling crockery & stoneware, had initially shown a net loss of Rs. 51,540, later revised to Rs. 83,180. The ITO determined the total income at Rs. 1,33,880, with a major addition of Rs. 1,92,944 in the trading account. The assessee explained the gross loss on sales, attributing it to various factors such as defective clay-body sales and increased expenses. The CIT(A) analyzed the gross profit margins, historical data, and the Excise Department's selling prices to conclude that the ITO's application of 25% gross profit was unjustified. The CIT(A) partially allowed the claim for loss on sales of clay-body, ultimately deleting the addition made by the ITO and determining the business loss at Rs. 36,824. The Tribunal upheld the CIT(A)'s decision, considering the firm's past losses and the regular maintenance of books and registers as supporting factors.

Issue 2: Assessment of rental income from factory sheds
The second controversy revolved around the assessment of rental income from factory sheds. The assessee contended that due to the business closure process, they progressively let out the sheds, leading to rental income. The CIT(A) accepted this argument, categorizing the rental income under "income from house property" instead of "income from business," as done by the ITO. During the hearing, the counsel provided updated details on the rented area and tenants, indicating the progressive increase in rented space and the tenants' independent operations. The Tribunal upheld the CIT(A)'s decision, affirming that the rental income should indeed be assessed under the head "income from house property." Consequently, the Revenue's appeal was dismissed, affirming the CIT(A)'s rulings on both issues.