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TMI Blog2010 (6) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... ding, the interest paid thereon has to be allowed as deduction while computing income from house property - matter remanded back for verification. Regarding unaccounted cash credit - no opportunity was specifically given to the assessee either by the A.O. or by the ld. CIT(A) to produce the cash book in order to establish the availability of cash on the relevant dates to make deposit in the bank account - Decided in the favour of the assessee by way of remand Regarding set off of brought forward business loss and unabsorbed depreciation is consequential to the main issue relating to the head of income under which rental income is chargeable to tax - the assessee will not be entitled to claim any set off of brought forward business loss and unabsorbed depreciation since there is no income chargeable to tax in its hands under the head “profits and gains of business - Decided against the assessee - ITA NO. 655/Mum/2009 - - - Dated:- 25-6-2010 - VIJAY PAL RAO JUDICIAL MEMBER J. P.M. JAGTAP ACCOUNTANT MEMBER J. Appellant by : Shri G.P. Mehta Respondent by : Shri S.S. Rana/Shri L.K. Agarwal ORDER PER P.M. JAGTAP, A.M. This appeal by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t known what kitchen equipments have been used to collect the rental income and dividend income. Further, the assessee has not claimed depreciation on land and building as forming part of his business. Any wise and prudent businessman would claim depreciation on these types of assets for the instant case; the assesse deliberately did not claim depreciation. It is further gathered that the assessee debited Rs. 26,94,967/- to P L A/c as interest paid. The assessee has shown liability of Rs. 2,01,36,483/- on which he has claimed interest paid Rs.26,94,967/-. There is no nexus between the loan taken for earning income during this year. It was for investment in other parts of assets shown in balance sheet. Therefore, interest is not allowed for the purpose of rental income hence this ground of interest loan is also rejected. The other portion of expenditure is loan processing fees of Rs. 2,10,000/-. The assessee was asked to furnish the details of expenditure on loan processing and the assessee s representative filed an explanation on 20.12.2007, regarding loan processing fees paid where he has produced the copy of Bank account showing the debit entry on 27.05.2007 on processin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance of Rs. 40,93,651/- made by the A.O. on account of various expenses and addition of Rs. 1,82,000/- made u/s 68. It was submitted on behalf of the assessee before the ld. CIT(A) that first restaurant by name Jacaranda was started by the assessee at Bangalore in the year 1991. It was submitted that a second restaurant by name Orchids Roses was started by the assessee in the year 1997-98 and it continued the restaurant business till the year 2000-01. It was submitted that in the year 2000-01, the assessee firm leased out the restaurant Jacaranda to M/s Rendezvous Restaurant Pvt. Ltd. along with all fixtures fittings and equipments for a consolidated lease charge and the said lease rent was offered and taxed as business income of the assessee from A.Y. 2001-02 to 2003-04. It was submitted that in the previous year relevant to A.Y. 2004-05, the second restaurant was also leased out by the assessee to M/s Banjara-The Restaurant along with all furniture, fittings and equipments at a consolidated charge and these lease rentals were also offered as business income. It was submitted that substantial funds were borrowed by the assessee to acquire the business as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the A.O., however, did not accept the same on the ground that the relevant cash book was not produced by the assessee for verification. It was contended that the A.O., however, never asked the assessee to produce the said cash book for verification and the relevant cash deposits were treated by him as unexplained without giving the assessee a sufficient and proper opportunity of being heard. 7. After considering the submissions made on behalf of the assessee before him as well as the material available on record, the ld. CIT(A) found that there was no evidence produced by the assessee to show that any business activity was carried out by it from the premises given on lease. He also noted that no evidence was produced by the assessee to show that the leasing out of premises was only a temporary feature and it was planning to continue to carry on the hotel business in future. On perusal of the relevant lease agreement, he noted that the premises were given on lease by the assessee on long term basis for a period of 6 to 15 years. He held that there was thus no merit in the claim of the assessee that the arrangement of leasing its premises was only a temporary featur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and genuineness of the said cash. He therefore confirmed the addition of Rs. 1,82,000/- made by the A.O. u/s 68. The ld. CIT(A) thus confirmed the addition made by the A.O. to the total income of the assessee substantially vide his appellate order dated 27.10.08 and aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 10. The assessee has raised the following grounds in this appeal: 2. The learned lower authorities have grossly erred in treating the lease rental receipts as income exigible to tax under the head income from house property as against the business income claimed by the appellant. The findings of the Assessing Officer is contrary to the propositions laid down by the Hon ble Supreme Court. 3. The learned lower authorities have grossly erred in disallowing entire amount of expenses claimed at Rs. 4,093,651/-. Reasons assigned for the impugned disallowance are wholly wrong and contrary to the provisions of law and evidences on record. 4. Having regard to the facts of the case, provisions of law and judicial propositions, the whole of the expenses claimed at Rs. 4,093,365/- ought to have been allowed. 5. The learned lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets. He submitted that the claim of the assessee for deduction on account of interest thus is liable to be considered in accordance with law depending on the head of income under which the rental income is to be brought to tax. He submitted that bifurcation can be made of the rental income received by the assessee in rent attributable to the building and rent attributable to furniture, fixtures and other equipments and since the rent attributable to furniture and fixtures and other equipments is chargeable to tax under the head income from other sources , the claim of the assessee for depreciation as well as other expenses has to be considered under the said head in accordance with law. He invited our attention to the details of such expenses placed at page No. 68 of his paper book and submitted that a suitable direction may be given to the A.O. to consider the allowability of the same. 13. As regards ground No. 5 relating to the addition of Rs. 1,82,000/- made by the A.O. and confirmed by the ld. CIT(A) u/s 68 on account of cash deposits found to be made in the bank account of the assessee, the learned counsel for the assessee submitted that the said cash deposits were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e absence of such bifurcation and keeping in view the fact that rent is mainly attributable to the premises, even the alternative contention of the assessee cannot be accepted. 16. We have considered the rival submissions and also perused the relevant material on record including the agreement under which the hotel premises owned by the assessee were given on rent. The main issue which is involved in this appeal is whether the rental income received by the assessee under the said agreement is chargeable to tax in its hands under the head income from house property as held by the authorities below or under the head profits and gains of business as claimed by the assessee. It is also observed in this context that the basic principles in the matter of chargeability of rental income to tax under the head income from house property or profits and gains of business have been laid down by the Hon ble Supreme Court in the various decisions which are summarized below: House owning, however profitable, cannot be a business or trade in the IT Act and where income is derived from house property by the exercise of property rights properly so called, the income falls under the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s other equipments required for running the restaurant, the main intention of the assessee as is evident from the terms and conditions of the relevant agreements was to derive income by the exercise of property rights in the form of fixed monthly rent. As rightly submitted by the learned D.R. in this regard, there were no other services which the assessee was required to render except giving the possession of the premises owned by it to the tenant to run the restaurant. The assessee in no way either directly or indirectly involved in the business of running of restaurant in the said premises and its intention was clear to exploit the property to earn income in the form of rent. The property thus was given by the assessee on leave or licence basically for earning income there from in the form of rent and the character of income so derived was income from house property falling u/s 22 as held by the authorities below. Merely because the property was given on leave or licence for a specific purpose of running restaurant or it was given along with furniture, fixtures as well as other equipments required for running of restaurant, the same in our opinion, could not change the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion stating that there is no such bifurcation of rent made in the relevant agreement. However, the undisputed fact is that the rent received by the assessee was composite one for building as well as for furniture, fixtures and other equipments available therein and the bifurcation of rent for building and for other assets, in our opinion, can be reasonably be made on the basis of written down value of the said assets which are indicative of the quantum of investment made by the assessee in the said asset. The schedule of fixed assets as on 31.3.05 is given on page No. 71 of the paper book which shows that WDV of land and building is Rs.1.51 crores as against the WDV of other assets which is to the extent of Rs.0.34 crores. On this basis, the rental income, in our opinion, can reasonably be bifurcat4d as 80% for land and building and 20% for other assets and the same can be taxed under the head income from house property and income from other sources respectively. 19. As regards ground No. 3 4 relating to the assessee s claim for deduction on account of various expenses, we are of the view that the allowability of the said claim needs to be considered afresh in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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