2018 (6) TMI 606 - AT - Income Tax

Income derived from letting out of the properties - Income from House Property or Business Income - Held that - Following the judgement in assessee s own case KNIGHT RAJ PROPERTIES P LTD. VERSUS ITO 10 (1) (4) , MUMBAI 2018 (2) TMI 349 - ITAT MUMBAI wherein it is held that it is undisputed that assessee company s only source of income is from letting out of properties. This is duly supported by the P&L account submitted by the assessee - hence assessee s receipts should be considered as business income - Decided in favour of assessee. Disallowance the entire expenses debited to P&L a/c - Held that - In view of our decision as above, this issue is remitted to the file of the AO to decide the issue in accordance with above decision - allowed for statistical purpose. Disallowance u/s 40(a)(ia) for management consultancy fees - Held that - The issue is remitted to the file of the AO - AO is directed to consider the issue afresh in light of the additional evidence submitted by assessee after giving adequate opportunity of being heard - allowed for statistical purpose. Treatment of loan borrowed as unexplained cash credit u/s 68 - Held that - the issue is remitted to the file of the AO - AO is directed to consider the issue afresh in light of the additional evidence submitted by assessee after giving adequate opportunity of being heard - allowed for statistical purpose.

Issues Involved:
1. Treating 'Business Income' as 'Income from House Property'
2. Disallowing the entire expenses debited to the profit and loss account
3. Disallowance under section 40(a)(ia) - ?8,35,000/-
4. Treating the loan borrowed as unexplained cash credit under section 68 - ?5,00,000/-
5. Treating the cash deposited in the bank account as unexplained cash credit under section 68 - ?8,08,000/-
6. Liability to pay interest under section 234B and 234C

Issue-wise Detailed Analysis:

1. Treating 'Business Income' as 'Income from House Property':
The Assessing Officer (A.O.) treated the income derived from letting out properties as 'Income from House Property' instead of 'Business Income'. The assessee argued that it was engaged in the business of letting out properties, hence the income should be treated as 'Business Income'. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision. However, the ITAT referred to the Supreme Court's decision in Rayala Corporation (P) Ltd. vs. ACIT, which supported the assessee's claim that rental income from letting out properties should be treated as 'Business Income'. Consequently, the ITAT set aside the order of the authorities below and held that the income is to be treated as 'Business Income'.

2. Disallowing the entire expenses debited to the profit and loss account:
This issue was considered consequential to the decision on treating the rental income as 'Business Income'. The ITAT remitted this issue back to the A.O. to decide in accordance with the decision that the rental income is 'Business Income'.

3. Disallowance under section 40(a)(ia) - ?8,35,000/-:
The A.O. disallowed the management consultancy expenses of ?8,35,000/- under section 40(a)(ia) due to the absence of the assessee's response. The CIT(A) confirmed this disallowance. The assessee argued that the payment was made by its sister concern, and TDS was duly deducted. The ITAT remitted the issue back to the A.O. for fresh consideration in light of the additional evidence provided by the assessee.

4. Treating the loan borrowed as unexplained cash credit under section 68 - ?5,00,000/-:
The A.O. added ?5,00,000/- as unexplained cash credit under section 68, which was upheld by the CIT(A). The assessee argued that reasonable opportunity was not provided to explain the loan. The ITAT admitted additional evidence and remitted the issue back to the A.O. for fresh consideration.

5. Treating the cash deposited in the bank account as unexplained cash credit under section 68 - ?8,08,000/-:
The A.O. added ?8,08,000/- as unexplained cash credit under section 68, which was upheld by the CIT(A). The assessee submitted additional evidence, including affidavits confirming the source of cash deposits. The ITAT remitted the issue back to the A.O. for fresh consideration in light of the additional evidence.

6. Liability to pay interest under section 234B and 234C:
The assessee denied any liability to pay interest under sections 234B and 234C. Since the primary issues were remitted back to the A.O., the ITAT did not provide a specific ruling on this matter.

Conclusion:
The ITAT allowed the appeal for statistical purposes, remitting several issues back to the A.O. for fresh consideration in light of additional evidence and the decision to treat the rental income as 'Business Income'. The ITAT emphasized the need for adequate opportunity for the assessee to present its case.

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