2024 (8) TMI 1290 - AT - Income Tax

Correct head of income - rental income received from the tenants income from house property or income from business - DR submitted that the assessee is solely engaged in the leasing out of the properties and the since the tenant is paying rent along with the amenities charges hence the income disclosed under the head income from house property is chargeable to tax under head income from business. HELD THAT -. Prima-facie the assessee has received composite rent and the payee/tenant has deducted TDS u/sec 194I of the Act in respect of rent of the premises and similarly on maintenance of space and other charges the tenant has deducted TDS under the provisions of Sec.194C of the Act. The assessee has maintained separate books of accounts and are audited under the provisions of companies Act. In the Audited Profit Loss Account in particular disclosure Under Income Revenue From Operations Notes 17 the assessee has bifurcated the income (i) Sale of Services less service tax and at Notes 17.1 License fees and rental income service charges and events . Similarly the assessee has disclosed at Notes 18 Other Income placed at Page 12 of the paper book to substantiate the composite rent is bifurcated between rental income and maintenance charges. We find that the assessing officer has accepted the method of accounting of offering of rental income under the income from house property and the common area maintenance charges under income from business rental income for the A.Y.2016-17 to A.Y.2021-22 and passed the orders u/sec 143(1) and U/sec143(3) CIT(A) has over looked various factual aspects/evidences and sustained the action of the assessing officer. Accordingly we set aside the order of the CIT(A) on this ground of appeal and direct the AO to consider the rental income under the income from house property and the common area maintenance charges under income from business and allow the deductions incurred wholly and exclusively for earning the income. Ground of appeal no.1 decided in favour of the assessee on taxability of rental income under income from house property. Disallowing interest expenses considering the same pertains to expenses not incurred wholly for the purpose of business - HELD THAT - Assessee could able to substantiate with the information and details of the availability of sufficient own funds but the reconciliation and the factual information has to be examined and we rely on the ratio laid down in the case of Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT and accordingly we restore this issue to the file of assessing officer for verification and examination of facts and decide on merits. The assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. Disallowing the adjustment of brought forward book loss to be set off against the book profits U/sec 115JB - HELD THAT -Assessee could able to substantiate with the information and details. Therefore considering the principles of natural justice shall provide with one more opportunity of hearing to the assessee to substantiate the case with evidences and information. Accordingly set aside the order of the CIT(A) on this disputed issue and remit the entire disputed issues to the file of the Asssessing officer to Re-examine issue. Disallowance of interest expenses - Assessee has sufficient own funds and were utilized for the purpose of business and the interest claim cannot be denied - CIT(A) has erred in holding that the interest expenses are not incurred wholly and exclusively for the business purpose. Whereas these facts need to be examined and verified. Accordingly we restore this issue to the file of assessing officer for verification.

Summary

Issues Involved:
1. Taxability of rental income under "Income from House Property" vs. "Income from Business/Profession".
2. Allowance of other expenses, interest expenses, and deductions under the head "business income".
3. Compliance with the Faceless Appeal Scheme, 2021.
4. Set-off of interest income on fixed deposits against the project cost.
5. Verification and quantification of additions or deletions by the AO.
6. Treatment of brought forward book losses against book profits under MAT provisions.
7. Allowance of bad debt expenses and unrealized rent as deductions.

Detailed Analysis:

1. Taxability of Rental Income:
The primary issue was whether the rental income should be taxed under "Income from House Property" or "Income from Business/Profession". The assessee argued that the rental income from letting out shops and spaces in a mall should be considered as "Income from House Property". The AO contended that the composite rent, including amenities and maintenance charges, should be taxed as "Income from Business". The CIT(A) upheld the AO's view. However, the Tribunal directed the AO to consider the rental income under "Income from House Property" and the maintenance charges under "Income from Business".

2. Allowance of Expenses:
The assessee argued for the allowance of other expenses, interest expenses, and deductions under the head "business income" if the rental income is treated as business income. The Tribunal noted that these were alternative grounds and directed the AO to allow deductions incurred wholly and exclusively for earning the income under "Income from Business".

3. Compliance with Faceless Appeal Scheme, 2021:
The assessee raised concerns about the CIT(A) not following the procedure laid down by the Faceless Appeal Scheme, 2021. This ground was not pressed by the assessee and was dismissed.

4. Set-off of Interest Income on Fixed Deposits:
The AO taxed the interest income on fixed deposits under "Income from Other Sources". The CIT(A) directed the AO to set off the interest against the project cost, following the Tribunal's decisions in the assessee's own case for previous years. The Tribunal upheld this direction.

5. Verification and Quantification by AO:
The revenue appealed against the CIT(A)'s direction to the AO to call for necessary details for verification and re-computation of income. The Tribunal found that the CIT(A) had overstepped by issuing such directions and set aside the order, directing the AO to consider the rental income under "Income from House Property".

6. Treatment of Brought Forward Book Losses:
For A.Y. 2014-15, the assessee argued that brought forward book losses should be set off against book profits under MAT provisions. The Tribunal directed the AO to verify and examine the facts and adjudicate afresh.

7. Allowance of Bad Debt Expenses and Unrealized Rent:
The assessee claimed bad debt expenses and unrealized rent as deductions under "Income from House Property". The Tribunal directed the AO to verify and examine these claims and decide on merits.

Conclusion:
The Tribunal partly allowed the appeals filed by the assessee for statistical purposes and dismissed the appeals filed by the revenue. The AO was directed to consider the rental income under "Income from House Property" and the maintenance charges under "Income from Business", and to allow deductions accordingly. The Tribunal also directed the AO to verify and examine other claims and deductions made by the assessee.