2015 (11) TMI 1359 - AT - Income Tax

Rental income derived by exploiting the stock in trade/work-in-progress - CIT(A) treated it as income from house property - Held that - The issue is exactly identical and covered in favour of the assessee by the coordinate bench decision in assessee s own case for AYs 2004-05 and 2005-06 wherein held that considering the period for which the flats have been let out, as per the agreement, it could not be said that the said flats have been let out only for a short period. We are of the considered view that the assessee has let out those flats as an owner to exploit the income from those flats as owner of the assets.Accordingly, we hold that the rental income realized by the assessee is the income from house property and is to be assessed under the head income from house property . Therefore, we uphold the orders of the Ld. CIT(A) by rejecting the grounds of appeal taken by the Department - Decided in favour of assessee. Interest & finance charges - revenue v/s capital expenditure - Held that - As the facts relating to the issue in hand are raised before CIT(A) for the first time and this can be verified by the AO in case bench feels so. We deem it fit and appropriate in the interest of natural justice and fair play to set aside this issue to the file of AO to consider the fresh submissions made by the assessee before the CIT(A) for the first time and decide the issue in accordance with law.

Summary

Issues Involved:
1. Treatment of rental income as income from house property for AY 2006-07.
2. Allowance of interest and finance charges as revenue expenditure for the ongoing project for AY 2008-09.

Analysis:

Issue 1: Treatment of rental income as income from house property for AY 2006-07:
The dispute in this appeal revolves around the categorization of rental income as either business income or income from house property. The Assessing Officer (AO) treated the rental income as business income, reducing the business loss and directing the remaining loss to be carried forward. The assessee contended that the rental income should be considered under the head "income from house property" by claiming standard deduction under section 24 of the Income-tax Act. The Commissioner of Income Tax (Appeals) (CIT(A)) allowed the assessee's appeal based on a Tribunal's decision in the assessee's own case for previous assessment years. The Tribunal upheld the CIT(A)'s decision, citing that the rental income was derived by the assessee as the owner of the assets and should be assessed under the head "income from house property."

Issue 2: Allowance of interest and finance charges as revenue expenditure for the ongoing project for AY 2008-09:
In the appeal for AY 2008-09, the primary contention was the disallowance of interest claimed by the assessee as revenue expenditure. The AO disallowed the interest amount, stating that the project was not abandoned, and the loan funds were utilized for project development. The CIT(A) allowed the claim after considering fresh submissions made by the assessee, which were presented for the first time during the appeal. The Tribunal set aside the issue to the AO's file for reconsideration in light of the new submissions, emphasizing the importance of natural justice and fair play. The appeal for AY 2008-09 was allowed for statistical purposes.

In conclusion, the Tribunal dismissed the revenue's appeal for AY 2006-07 regarding the treatment of rental income and allowed the appeal for AY 2008-09 concerning the allowance of interest and finance charges as revenue expenditure, directing a reevaluation by the AO.