2012 (5) TMI 419 - AT - Income Tax

Tribunal's Ruling: Assessment Reopened, Income Reclassified, Expenses Partially Allowed

Saidarshan Business Centres (P) Ltd. Versus ITO

Saidarshan Business Centres (P) Ltd. Versus ITO - TMI Issues Involved:1. Validity of reopening of assessment.2. Treatment of business centre receipts as 'income from house property' versus 'business income.'3. Treatment of reimbursement of expenses.4. Allowance of expenses against business income.5. Treatment of interest income as 'income from other sources' versus 'business income.'6. Allowance of depreciation and other expenses.Detailed Analysis:1. Validity of Reopening of AssessmentThe assessee challenged the reopening of the assessment on the grounds that there was no new material or tangible fact that came to light after the original assessment. The assessee argued that the reopening was merely a change of opinion, which is not permissible. However, the Tribunal upheld the reopening of the assessment, stating that the notice under section 148 was issued within the permissible period of six years and that the original return was processed under section 143(1)(a), implying no application of mind by the AO. The Tribunal relied on the Supreme Court decision in Rajesh Jhaveri Stock Brokers (291 ITR 500), confirming the validity of the reassessment proceedings.2. Treatment of Business Centre ReceiptsThe AO treated the business centre receipts as 'income from house property,' which was upheld by the CIT(A). The assessee argued that the receipts should be treated as 'business income' due to the various services and facilities provided. However, the Tribunal upheld the CIT(A)'s decision, relying on the Tribunal's decision in the assessee's own case for AY 2003-04 and the decision in Shambhu Investment Pvt. Ltd. vs. CIT (249 ITR 47), confirming that the receipts should be treated as 'income from house property.'3. Treatment of Reimbursement of ExpensesThe assessee argued that the reimbursement of electricity and telephone expenses should not be included in the 'income from house property.' The Tribunal found merit in the assessee's submission, noting that in previous assessments, such reimbursements were excluded from the gross business centre receipts. The Tribunal directed the AO to exclude the reimbursement amount from the business centre receipts while calculating the 'income from house property.'4. Allowance of Expenses Against Business IncomeThe AO disallowed various expenses claimed by the assessee, stating that they did not have a nexus with the business income. The CIT(A) allowed partial relief, recognizing that some expenses were necessary for maintaining the corporate status of the assessee. The Tribunal further allowed certain additional expenses, directing the AO to allow specific percentages of the claimed expenses and 50% of the allowable depreciation on the Parel premises and other assets.5. Treatment of Interest IncomeThe AO treated the interest income as 'income from other sources,' which was upheld by the CIT(A). The assessee argued that the interest income should be treated as 'business income' due to the systematic and organized manner of the financing activity, supported by a board resolution and one of the main objects of the Memorandum of Association. The Tribunal found merit in the assessee's submission, noting that the interest income had significantly increased in subsequent years, indicating a systematic business activity. The Tribunal directed the interest income to be treated as 'business income.'6. Allowance of Depreciation and Other ExpensesThe Tribunal directed the AO to allow specific percentages of various expenses and 50% of the allowable depreciation on the Parel premises and other assets. The Tribunal also allowed 75% of the interest expenditure on the vehicle loan, recognizing the business nature of the financing activity.Conclusion:The Tribunal upheld the reopening of the assessment, treated the business centre receipts as 'income from house property,' allowed the exclusion of reimbursement of expenses from the business centre receipts, partially allowed various business expenses, directed the treatment of interest income as 'business income,' and allowed specific percentages of expenses and depreciation. The Tribunal's decisions were based on a detailed analysis of the facts, previous Tribunal decisions, and relevant case law.