2009 (4) TMI 528 - AT - Income Tax

Summary

Issues Involved:

1. Validity of assessment proceedings initiated under section 147 of the Act for the assessment year 1998-99.
2. Disallowance of loss on account of forfeiture of shares for the assessment year 1999-2000.
3. Classification of service charges received as "Income from house property" or "Income from business or profession" for the assessment year 1999-2000.
4. Disallowance of expenses related to the property for the assessment year 1999-2000.

Issue-wise Detailed Analysis:

1. Validity of Assessment Proceedings Initiated Under Section 147 of the Act for the Assessment Year 1998-99:

The assessee challenged the validity of the assessment proceedings initiated under section 147, arguing that the notice under section 148 was based on a mere change of opinion without any new information. The CIT (Appeals) held that the proceedings were valid, stating that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment based on findings from the subsequent assessment year 1999-2000. However, the Tribunal found that the Assessing Officer did not bring any material on record to justify the re-opening for the assessment year 1998-99. The Tribunal held that the reasons given by the Assessing Officer were not relevant and material to the year under consideration and thus invalidated the re-opening under section 147.

2. Disallowance of Loss on Account of Forfeiture of Shares for the Assessment Year 1999-2000:

The assessee claimed a deduction for the loss incurred due to the forfeiture of shares, which was disallowed by the Assessing Officer on the grounds that the loss occurred in the financial year 1997-98 and was a capital loss. The CIT (Appeals) upheld the disallowance. The Tribunal noted that the CIT (Appeals) had erred in not admitting additional evidence under rule 46A. The Tribunal restored the issue to the CIT (Appeals) for fresh adjudication after admitting the additional evidence and providing an opportunity to both parties.

3. Classification of Service Charges Received as "Income from House Property" or "Income from Business or Profession" for the Assessment Year 1999-2000:

The Assessing Officer assessed the service charges received from IDBI as "Income from house property," disallowing related expenses. The CIT (Appeals) upheld this decision, stating that the dominant object of the agreement was to let out the property. The Tribunal agreed, noting that the agreement's terms indicated a lease rather than a complex commercial activity. The Tribunal referenced the Supreme Court's decision in Shambhu Investment (P.) Ltd., which held that income from letting out property is assessable as "Income from house property."

4. Disallowance of Expenses Related to the Property for the Assessment Year 1999-2000:

The Assessing Officer disallowed expenses related to the property, including depreciation, building repair, and maintenance, as the income was assessed under "Income from house property." The CIT (Appeals) upheld this disallowance. The Tribunal agreed, stating that when income is assessed under "Income from house property," only statutory deductions under section 24 are allowable. The Tribunal also rejected the assessee's alternative argument for allowing depreciation on furniture and fixtures, as these were not used for the assessee's business.

Conclusion:

The Tribunal allowed the appeal for the assessment year 1998-99, invalidating the re-opening under section 147. For the assessment year 1999-2000, the Tribunal partly allowed the appeal for statistical purposes, restoring the issue of loss on account of forfeiture of shares to the CIT (Appeals) for fresh adjudication and confirming the assessment of service charges as "Income from house property" and related disallowances.