2016 (1) TMI 743 - AT - Income Tax

Assessment of interest income - business income or income from other sources - Held that - The assessee has not brought any material to show that interest income is taxable under any other head except income from other sources and therefore we are of the considered opinion that the order of the Ld. CIT(A) is not sustainable because interest income is definitely taxable under the head income from other sources until and unless it is shown by the assessee that this interest income is taxable under some other head and since in the present case the assessee has not so established we hold that the interest income in the present case is correctly assessed by the AO under the head income from other sources. Hence we reverse the order of the Ld. CIT(A) on this issue and restore that of the AO. - Decided in favour of revenue. Determination of value of property - Addition made on the basis of report of the registered valuer submitted for the value of capital work in progress regarding construction of Hotel China Gate - CIT(A) deleted the addition - Held that - Addition is not made by the AO on estimate basis but this is on the basis of actual basis between investment declared by the assessee and valued by the registered valuer as per the valuers report submitted by the assessee itself. This addition was deleted by the CIT(A) on this basis that the addition was made by the AO subject to rectification as per outcome of DVO s report. This is not the case of the Ld. CIT(A) that DVO has determined the value of the property at or near to the value of investment shown by the assessee. Hence we are of the considered opinion that the order of the Ld. CIT(A) on this issue is also not sustainable. - Decided in favour of revenue. Disallowance of brokerage expenditure and staff welfare expenses - Held that - Regarding disallowance of Rs. 10, 000/- deleted by the Ld. CIT(A) out of staff welfare expenses we are of the considered opinion that no interference is called for in the order of Ld. CIT(A) on this issue also because AO estimated Rs. 20, 000/- as disallowable for the reason that the expenses is not fully verifiable and as against this it was estimated by the Ld. CIT(A) that disallowance of Rs. 10, 000/- out of staff welfare expenses is reasonable. We are of the considered opinion that in the facts of the present case estimate by Ld. CIT(A) appears to be reasonable and hence we decline to interfere in the same. Regarding disallowance of Rs. 1.00 lakh out of brokerage expenditure we find that no cogent reasoning is given by the AO in the assessment order for making this disallowance and therefore we feel that the entire disallowance out of brokerage expenses should have been deleted by the Ld. CIT(A) instead of deleting Rs. 50, 000/- out of Rs. 1.00 lakh. We delete the entire disallowance of Rs. 1.00 lakh out of brokerage expenses. Accordingly Ground No.3 of revenue is rejected whereas grounds raised by the assessee in the CO are allowed.

Summary

Issues:
1. Treatment of interest income as business income
2. Addition under section 69 for investment from undisclosed source
3. Deletion of traveling and conveyance expenses
4. Deletion of brokerage and welfare expenses
5. Disallowance of brokerage expenditure
6. Disallowance of staff welfare expenses

Analysis:

1. Treatment of Interest Income:
The Revenue appealed against the order treating interest income as business income, arguing that the company is neither a financial institution nor a banking company. The Tribunal noted that the AO assessed interest income under other sources following a High Court judgment. The CIT(A) disagreed, citing past practices. The Tribunal held that unless proven otherwise, interest income is taxable under other sources. Thus, the Tribunal reversed the CIT(A)'s decision, upholding the AO's treatment.

2. Addition under Section 69:
The AO added an amount under section 69 due to a variance in investment values. The CIT(A) deleted this addition, awaiting a DVO report. The Tribunal found the CIT(A)'s decision unsustainable as the DVO report did not align values. Consequently, the Tribunal reversed the CIT(A)'s decision, restoring the AO's addition.

3. Deletion of Expenses:
The CIT(A) deleted certain expenses, including traveling, conveyance, brokerage, and welfare expenses. The Tribunal reviewed the disallowances and found the deletion of staff welfare expenses reasonable. However, the Tribunal reversed the deletion of brokerage expenses, noting insufficient reasoning by the AO. Thus, the Tribunal allowed the CO on this issue.

4. Disallowance of Brokerage Expenditure:
The Revenue challenged the deletion of brokerage expenses by the CIT(A). The Tribunal observed that the AO lacked clear reasoning for the disallowance. Consequently, the Tribunal overturned the partial deletion by the CIT(A, allowing the CO on this ground.

5. Disallowance of Staff Welfare Expenses:
The AO disallowed staff welfare expenses, citing lack of verifiability. The CIT(A) partially upheld this disallowance. The Tribunal found the CIT(A)'s reduction of disallowance reasonable and declined to interfere, affirming the decision.

In conclusion, the Tribunal partly allowed the Revenue's appeal and fully allowed the CO of the assessee, making distinct decisions on each issue raised, based on the merits of the arguments presented and the legal provisions applicable.