2021 (12) TMI 1208 - AT - Income Tax

Correct head of income - earning income from leasing of the properties - income from house property or business income - HELD THAT - The intention of the assessee can be understood only by its actions. Considering the fact that assessee is an individual and over the years assessee has declaring the income only under the head Income from House Property and it is far-fetched for the assessee to rely on the decision in the case of Chennai Properties Investment Ltd. 2015 (5) TMI 46 - SUPREME COURT with the assessee s case. Therefore, we do not find any reason to entertain the grounds raised by the assessee. Accordingly, it is dismissed. Addition of bad debts - Assessee has earned the property for the purpose of earning interest income and assessee has declared the source of income in the return of income. From the record we observed that the company M/s. Rusam Developer Pvt. Ltd., has gone into liquidation and assessee could not recover anything from them including loan amount and the interest. Since the assessee has already declared the interest income as business income and revenue has accepted the source of income therefore the bad debts incurred by the assessee is certainly an expenditure allowable deduction u/s. 37 of the Act. Therefore, we direct the Assessing Officer to allow the bad debts claimed by the assessee. Accordingly, Ground No. 2 is allowed. Disallowing business loss as incurred by the Assessee due to cancellation of property booked by the Assessee with the Builder - Assessee recovered the cost of the property based on the agreement with the builder and the cost incurred by the assessee for registration are remained as expenditure. Since the property is clearly bought for the purpose of lease and this income will be charged to tax under the head Income from House Property and the cost incurred by the assessee by not recovery of registration charges can be a loss claimable under the head Income from House Property . Accordingly, we direct the Assessing Officer to allow the loss claimed by the assessee.

Summary

Issues Involved:
1. Classification of rental income: "Income from House Property" vs. "Income from Business & Profession."
2. Disallowance of bad debts and business loss amounting to ?3,45,57,662.
3. Disallowance of business loss due to cancellation of property amounting to ?9,23,800.

Issue-wise Detailed Analysis:

1. Classification of Rental Income:
The assessee declared rental income under the head "Income from Business & Profession" in the revised return, contrary to the original return, which classified it as "Income from House Property." The assessee argued that the main object was to lease out properties, citing the Supreme Court decision in Chennai Properties & Investment Ltd. However, the Tribunal observed that the assessee, an individual, had consistently declared such income under "Income from House Property" in previous years. The Tribunal ruled that the intention of the assessee could be understood from past actions, and thus, the rental income should be classified under "Income from House Property," dismissing the assessee's ground.

2. Disallowance of Bad Debts and Business Loss:
The assessee advanced ?3.1 crores to M/s. Rusam Developer Pvt. Ltd. and claimed it as bad debts due to the company's liquidation. The assessee had declared interest income from this loan in previous years, which was accepted by the Revenue. The Tribunal found that since the interest income was declared as business income, the bad debts should be allowed as a deduction under Section 37 of the Income Tax Act. The Tribunal directed the Assessing Officer to allow the bad debts claimed by the assessee.

3. Disallowance of Business Loss due to Cancellation of Property:
The assessee purchased a flat intending to lease it out but later canceled the purchase due to non-completion of construction, leading to a loss of ?9,23,800 in stamp duty and registration charges. The Tribunal noted that the property was bought for leasing purposes and the loss incurred from non-recovery of registration charges should be allowed as a loss under "Income from House Property." The Tribunal directed the Assessing Officer to allow the loss claimed by the assessee.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the classification of rental income under "Income from House Property" but allowed the deduction of bad debts and business loss due to the cancellation of property.