2020 (1) TMI 1016 - AT - Income Tax

Correct head of income - Income bifurcation - Income from letting of the property - adding back one-third statutory deduction after treating the income from house property as income from business - whether the assessee was justified in bifurcating the receipts from M/s. PACL Ltd. as income under two heads, i. e., income from house property and income from business ? - HELD THAT - We notice that the AO had ignored the addendum agreement as the same was not registered. Whereas it is also a factual position that even the agreement dated December 31, 2010 was also an unregistered document, therefore, in such a situation, the Assessing Officer was not expected to adopt the pick and choose method. Even otherwise, the Revenue failed to demonstrate as to how the addendum dated April 12, 2011 was compulsory registerable. AO had simply mentioned that the addendum dated April 12, 2011 was an afterthought. As per the factual position, the said addendum cannot be termed as an afterthought as the same was submitted before the Assessing Officer along with the agreement dated December 31, 2010 at the time of assessment proceedings and when once both the documents were presented by the assessee to the Assessing Officer during the course of assessment proceedings, thus, in that circumstances, it was incumbent upon the Assessing Officer to verify the genuineness and veracity of the said document. The Assessing Officer was not expected to adopt the short method and simply reach to the conclusion that the said addendum dated April 12, 2011 was an afterthought without recording any reasons or basis for reaching to the said conclusion. Bifurcation done by the assessee under the two heads of income, i. e., income from house property and income from business is in conformity with law and the same has been done on the basis of comparative market rate as charged by him from the other parties including that of the hon'ble High Court. That since the bifurcation has been done on scientific basis and no infirmity has been pointed out on record by the Assessing Officer by placing on record any counter rates or has not been able to rebut the said comparative market rates placed on record by the assessee, no new facts or circumstances have been brought before us in order to controvert or rebut the well reasoned finding, so recorded by the Commissioner of Income-tax (Appeals), thus, we have no reasons to interfere into or deviate from the findings so recorded by the learned Commissioner of Income-tax (Appeals). Therefore, this ground raised by the Revenue stands dismissed. Additions made on account of claim of depreciation - HELD THAT - Similar additions were also made in the assessment year 2011-12 which were deleted by the Commissioner of Income-tax (Appeals) vide order dated May 25, 2017 wherein 100 per cent. depreciation was allowed by the Commissioner of Income-tax (Appeals). On handsets, phones 80 per cent. depreciation has been allowed and 60 per cent. depreciation was allowed on projector, therefore, following the said decisions the Commissioner of Income-tax (Appeals) had decided this ground. Revenue has not placed on record any material to rebut the contentions of the Commissioner of Income-tax (Appeals) or has not placed on record any order of higher authority disagreeing with the order of the Commissioner of Income-tax (Appeals) in the earlier orders. Thus, we find no reasons to interfere into the said finding recorded by the Commissioner of Income-tax (Appeals). Therefore, this ground raised by the Revenue also stands dismissed.

Issues Involved:
1. Deletion of addition of ?4,10,66,418 by treating income from house property as income from business.
2. Deletion of disallowance of ?27,747 under section 14A of the Income-tax Act, 1961.
3. Depreciation claims on UPS.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?4,10,66,418 by Treating Income from House Property as Income from Business:

The Revenue filed an appeal against the order of the Commissioner of Income-tax (Appeals) (CIT(A)) which deleted the addition of ?4,10,66,418. The Assessing Officer (AO) had treated the income from house property as business income, arguing that the income received was of a composite nature, combining letting of space and providing services, which could not be segregated. The AO based this on a service agreement dated December 31, 2010, and subsequent agreements, which outlined services such as scanning, indexing, and storage of documents. The AO contended that these activities constituted business activities, and thus, the income should be taxed under the head "business income."

The CIT(A) found that the agreement could be bifurcated into two parts: one for physical storage of documents (income from house property) and the other for providing ancillary services (income from business). The CIT(A) relied on various judicial precedents, including the Supreme Court's decisions in East India Housing and Land Development Trust Ltd. v. CIT and Sultan Brothers P. Ltd. v. CIT, which established that income from letting out property should be taxed under the head "income from house property" if the primary intention is to let out the property, and any ancillary services are incidental.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had correctly bifurcated the income based on a scientific allocation and comparable market rates. The Tribunal also noted that the AO did not provide any counter rates or rebut the assessee's bifurcation. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.

2. Deletion of Disallowance of ?27,747 under Section 14A of the Income-tax Act, 1961:

The Revenue challenged the CIT(A)'s order which upheld the deletion of disallowance of ?27,747 under section 14A. The CIT(A) had directed the AO to verify the assessee's claim that no exempt income was earned during the relevant previous year and to delete the disallowance if found true. The CIT(A) relied on the jurisdictional Punjab and Haryana High Court's decision in CIT v. Lakhani Marketing Incl., which held that section 14A cannot be invoked unless there is receipt of exempt income in the concerned assessment year.

The Tribunal agreed with the CIT(A)'s reasoning and noted that the assessee had not earned any exempt income during the year under consideration. Following the principles laid down in CIT v. Lakhani Marketing Incl. and CIT v. Hero Cycles Ltd., the Tribunal dismissed the Revenue's appeal on this ground.

3. Depreciation Claims on UPS:

The Revenue also challenged the CIT(A)'s order which allowed the assessee's claim of depreciation on UPS at 80% as against 15% assessed by the AO. The CIT(A) had followed its own order for the assessment year 2010-11 and 2011-12, where similar claims were allowed. The Tribunal noted that the Revenue had not placed any material to rebut the CIT(A)'s findings or any higher authority's order disagreeing with the CIT(A)'s earlier decisions.

The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed the Revenue's appeal on this ground as well.

Conclusion:

The Tribunal dismissed both the appeals filed by the Revenue, upholding the CIT(A)'s decisions on all grounds. The Tribunal agreed with the CIT(A)'s bifurcation of income between house property and business, deletion of disallowance under section 14A, and allowance of depreciation claims on UPS.

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