2017 (12) TMI 1044 - AT - Income Tax

Assessment of leasing charges of machinery - under the head income from other sources OR income from business - Held that - The facts on record suggest that the assessee s mining business is almost permanently closed. In view of these factual matrix, we hold that the income from leasing out of the machinery to the sister concerns shall be assessed as income from other source. In view of this, we uphold the order of the ld. CIT(A) on this issue. However, the assessee had made an alternate submissions that the loss incurred by the assessee company under the various heads of expenses should be allowed from the income assessed under other heads of income. From the records we observe that the genuineness of these expenses debited in P&L account have not been verified by the authorities below. Prior to considering the allowability of these expenses. The genuineness and business requirement of the assessee needs verification. Therefore, for the verification of the genuineness of the expenses and also the justification of the expenses for business requirement of the assessee, the issue is restored back to the file of the Assessing Officer. Disallowance of various expenses under the head dead rent,Environment expenses and salary and wages paid - Held that - With regard to the claim of these expenses, we have already decided that the issue that these requires verification at the level of the Assessing Officer with regard to the genuineness and justification of the expenses for business of assessee, therefore, this ground of appeal is also restored back to the file of the Assessing Officer

Summary

Issues Involved:
1. Assessment of leasing charges of machinery under the head "income from other sources".
2. Assessment of lease rent amounting to ?62,92,739/- as against ?60,00,000/- received by the appellant.
3. Disallowance of expenses: Dead Rent, Environment expenses, and Salary & wages paid.

Issue-wise Detailed Analysis:

Issue 1: Assessment of Leasing Charges of Machinery
The appellant company, during the assessment year under consideration, did not carry out any business activities and instead leased its machinery to a group concern, declaring ?60,00,000/- as business income. The Assessing Officer (AO) treated this lease rent as "income from other sources" since no business activities were carried out. The CIT(A) upheld the AO's decision, emphasizing that the company had not engaged in mining activities for several years due to the lack of statutory and contractual approvals. The Memorandum of Association (MOA) clauses cited by the appellant were deemed insufficient to classify the lease income as business income. The ITAT supported this view, noting that the appellant's mining business was effectively closed and the lease was not a temporary measure. Thus, the lease income was rightfully assessed as "income from other sources."

Issue 2: Assessment of Lease Rent Amount
The AO assessed the lease rent at ?62,92,739/- based on the TDS certificate, while the appellant declared ?60,00,000/-. The appellant claimed the difference of ?2,92,739/- was received as advance lease rent for the succeeding year. However, the AO found no satisfactory explanation and the CIT(A) upheld this assessment. The ITAT also upheld the AO's decision, noting that the appellant had claimed TDS credit on the entire amount of ?62,92,739/-.

Issue 3: Disallowance of Expenses
The AO disallowed various expenses claimed by the appellant, including Dead Rent (?4,16,449/-), Environment expenses (?2,00,640/-), and Salary & wages paid (?36,50,617/-), on the grounds that these were not related to the earning of lease rental income. The CIT(A) upheld this disallowance, noting that the appellant did not conduct any business during the year and the expenses were not related to the lease income. The ITAT, however, restored the issue to the AO for verification of the genuineness and business requirement of these expenses. The AO was directed to verify the expenses before considering their allowability.

Conclusion:
The ITAT upheld the assessment of lease rent as "income from other sources" and the amount of ?62,92,739/-. However, the disallowance of expenses was remanded back to the AO for verification. The appeal was allowed for statistical purposes only.