2019 (9) TMI 310 - AT - Income Tax

Revision u/s 263 - Correct head of income - lease rental income as income under the head business and profession instead of income from house property - HELD THAT - Assessment order passed under section 143(3) of the Act for Assessment Year 2012-13 was revised under by the CIT on identical reasoning on the basis of which he passed the order under section 263 of the Act for the impugned assessment year. However, while deciding assessee s appeal in the order referred to above, the Tribunal quashed the order passed under section 263 of the Act and accepted assessee s claim of lease rental as business income. Thus, applying the rule of consistency also, assessee s claim of lease rental as income from business and profession has to be accepted. In view of the aforesaid, we do not find any infirmity in the order of learned Commissioner (Appeals) on the issue. This ground is dismissed. Proceedings under section 154 - Interest expenditure - assessee had not claimed the expenditure in the return of income filed under section 139(1) of the Act, it is not allowable - HELD THAT - Proceedings under section 154 - technically, the Revenue cannot challenge both these issues in a single appeal, which is the case at hand. As per the provision of the Act, if the Revenue was aggrieved with the decision of learned Commissioner (Appeals) in respect of both the appeals filed by the assessee, it should have filed two separate appeals, as the issue arising out of two separate proceedings cannot be clubbed in a single appeal. For this reason alone, ground no.2 raised by the Revenue deserves to be dismissed, as, the present appeal is to be treated as originating from the assessment order passed under section 143(3) r/w section 263 of the Act. Accordingly, ground no.2 is dismissed.

Summary

Issues Involved:
1. Classification of lease rental income as business income or income from house property.
2. Allowability of interest expenditure not claimed in the original return of income.

Issue-wise Detailed Analysis:

1. Classification of Lease Rental Income:

The primary issue revolves around whether the lease rental income should be classified as business income or income from house property. The assessee, engaged in buying and running infrastructure facilities, declared a loss in its return of income for the assessment year 2010-11, treating the lease rental income of ?8,57,92,855 as business income. The Assessing Officer initially accepted this classification. However, the Commissioner of Income Tax (CIT) invoked section 263 of the Income-tax Act, 1961, deeming the assessment order erroneous and prejudicial to the interests of the Revenue. The CIT directed the Assessing Officer to reclassify the lease rental income as income from house property, which led to the disallowance of various expenses claimed by the assessee.

Upon appeal, the Commissioner (Appeals) sided with the assessee, noting that the lease rental income was consistently treated as business income in previous and subsequent assessments. The Commissioner (Appeals) also referenced a prior decision for the assessment year 2012-13, where the lease rental income was accepted as business income. The Tribunal upheld this view, emphasizing the rule of consistency and the CBDT Circular no.16 of 2017, which clarified that income from industrial parks/SEZs should be treated as business income. Thus, the Tribunal dismissed the Revenue's appeal, affirming that the lease rental income should be treated as business income.

2. Allowability of Interest Expenditure:

The second issue concerns the disallowance of interest expenditure amounting to ?2,82,01,438. After the initial assessment, the Assessing Officer disallowed this expenditure via an order under section 154, citing that it was not claimed in the return of income filed under section 139(1). The assessee argued that the expenditure was inadvertently omitted and later claimed through a revised return under section 139(5). The Commissioner (Appeals) found that the Assessing Officer did not dispute the allowability of the interest expenditure but disallowed it on technical grounds. The Commissioner (Appeals) allowed the assessee's claim, noting that the revised return should have been considered.

The Tribunal dismissed the Revenue's appeal on this ground, highlighting that the issues arose from separate proceedings (assessment under section 143(3) r/w section 263 and order under section 154) and should have been challenged through separate appeals. Consequently, the Tribunal found the Revenue's appeal on this issue procedurally flawed and dismissed it.

Conclusion:

The Tribunal dismissed both the Revenue's and the assessee's appeals. The Revenue's appeal was dismissed on grounds of consistency in treating lease rental income as business income and procedural flaws in challenging the interest expenditure disallowance. The assessee's appeal was dismissed as academic, given the favorable decision on the primary issue in the Revenue's appeal.