2016 (11) TMI 1248 - AT - Income Tax

Profits and Gains from Business or Profession - assessment of income - business activity - claim of depreciation on assets - Held that - The assessee in our considered view is involved in a systematic activity of exploiting its asset, which in turn it had taken on lease , is thus involved in carrying on business activity. Thus, the income arising there from such business activity is to be assessed to tax in the hands of the assessee under the head Profits and Gains from Business or Profession as income from business. The assessee is entitled for claim of expenditure including depreciation of assets but not on the building , as the building was leased by the assessee wherein the assessee is not the owner as deduction against such business income . The case of the assessee is covered by the decision of Mumbai Tribunal in the case of Shreenath Balaji Computech Private Limited v. ACIT 2015 (6) TMI 1089 - ITAT MUMBAI wherein the Tribunal held the said income from leave and license fee as well maintenance charges as income from business to be brought to tax as Profit and Gains of Business or Profession and also allowed the claim of depreciation on assets except on building which was leased by the tax-payer in that case , as the facts in the instant case are similar. Treatment to loss - sale of securities under Portfolio Management Services - Business loss or short term capital loss - assessee is aggrieved that the learned CIT(A) enhanced assessment without affording opportunity of being heard to the assessee - Held that - The power of learned CIT(A) is co-terminus with powers of the AO which include power of enhancement of the assessment by the learned CIT(A) but principles of natural justice are to be adhered to and the learned CIT(A) ought to have given proper opportunity of being heard to the assessee in accordance with principles of natural justice before enhancing of the assessment. Thus in order to do complete justice in the matter, this issue is to be set aside and restored to the file of the learned CIT(A) to de-novo adjudicate the issue on merits after affording opportunity of being heard to the assessee. Needless to say that proper and sufficient opportunity of being heard shall be provided by learned CIT(A) to the assessee in accordance with principles of natural justice in accordance with law.

Summary

Issues:
1. Classification of income as "Income from other sources" instead of "Profit and Gains from Business or Profession."
2. Treatment of business loss on sale of securities under "Portfolio Management Service" as short term capital loss without proper opportunity for the assessee.

Analysis:

Issue 1:
The appeal before the ITAT Mumbai concerned the classification of income received by the assessee company as "Income from other sources" instead of "Profit and Gains from Business or Profession." The AO had treated the income from leave and license fees and maintenance charges as income from other sources, which was contested by the assessee. The assessee argued that their activities as a premises service provider constituted business operations, supported by audited accounts and various expenses incurred. The AO, however, held that sub-leasing property did not qualify as a business activity since the assessee was not the owner of the premises. The CIT(A) upheld the AO's decision, stating a lack of evidence of commercial letting. The ITAT, after considering the arguments and case laws, found that the assessee's activities qualified as business operations, entitling them to claim expenses and depreciation on assets. The ITAT referred to similar cases and allowed the appeal, directing the income to be assessed under "Profit and Gains from Business or Profession."

Issue 2:
The second ground of appeal was related to the treatment of a business loss on the sale of securities under "Portfolio Management Service" as a short term capital loss without proper opportunity for the assessee to present their case. The CIT(A) had enhanced the assessment without affording a hearing to the assessee, leading to the withdrawal of the set off of the short term capital loss. The ITAT noted that while the CIT(A) had the power to enhance assessments, principles of natural justice required providing a fair opportunity for the assessee to be heard. Therefore, the ITAT set aside this issue and remanded it to the CIT(A) for a de-novo adjudication after affording the assessee a proper opportunity to present their case. The ITAT emphasized the importance of adhering to principles of natural justice in such matters.

In conclusion, the ITAT allowed the appeal filed by the assessee for the assessment year 2008-09, addressing the issues of income classification and treatment of business loss with detailed reasoning and reference to relevant legal principles and precedents.