2015 (8) TMI 38 - AT - Income Tax

Revenue's Appeal Dismissed for 2009-10 & 2010-11, CIT(A) Decisions Upheld

The Tribunal dismissed the revenue's appeal for Assessment Years 2009-10 and 2010-11, upholding the CIT(A)'s decisions. The issues regarding disallowance ... Disallowance being 30% deduction for repair u/s 24 on rental income - CIT(A) held it as service charges and not rental income - CIT(A)deleting the addition considered by the AO as income from other sources instead of rental income - Held that:- CIT(A) on the issue in question being in conformity with the orders of the ITAT for earlier years and there being no change in facts and circumstances, we see no reason to interfere in the order of ld. CIT(A) to hold that though two agreements had been made for sublicense fee i.e rent and service charges separately, yet the fact remains that no services of any kind were provided by the appellant. To compound the issue, the AO has also failed to bring on record the fact, whether any expenses in respect of the services allegedly provided to Mitsui & Co., were claimed by the appellant. Thus no services were actually provided by the appellant, and factually the so called service charges were nothing but rent received by it. Further, it is settled law that form and substance of the transaction, and not the nomenclature assigned to it, determine the nature of the income . Accordingly, the appellant is eligible to claim standard deduction U/s 24 of the Act from the same and the disallowance so made is deleted - Decided in favour of assessee. Addition of litigation fees paid to some law firms - CIT(A) deleted addition - Held that:- CIT(A) following the Tribunal’s order in assessee’s own case for AY 2007-08 allowed the assessee’s claim as no expenses pertaining to personal litigation or other litigation of the directors were debited in the books of .account of the assessee. If directors were carrying any litigation in: their personal capacity, those expenses were separately debited in the personal account of the partners and not claimed by the assessee company. In the light of categorical finding of ld. CIT (A), in our opinion, it was for the revenue authorities to show from the detail of expenses 'that expenses disallowed related to criminal' proceedings against directors. or were otherwise 'inadmissible and were wrongly claimed by the assessee company.' This has . not been shown, Therefore, on facts and circumstances for the case, we are unable to interfere with the finding of the ld . CIT(A) that no inadmissible expenditure was claimed by the appellant under the head 'litigation expenses'. Addition 'made was rightly deleted - Decided in favour of assessee. Disallowance of depreciation on the basis of a finding given in the block assessment order - CIT(A) deleted addition - Held that:- The order of the ld. CIT(A) on the issue in question being in conformity with the orders of the ITAT for earlier years and there being no change in facts and circumstances, we see no reason to interfere in the order of ld. CIT(A) on the issue in question. - Decided in favour of assessee. Issues Involved:1. Disallowance of 30% deduction for repair under Section 24 on rental income.2. Classification of service charges as income from other sources instead of rental income.3. Disallowance of litigation fees paid to law firms.4. Disallowance of depreciation based on findings in the block assessment order.Issue-wise Detailed Analysis:1. Disallowance of 30% Deduction for Repair under Section 24 on Rental Income:The assessee had credited sub-license fee and service charges in its Profit & Loss Account. The Assessing Officer (AO) accepted the sub-license fee as 'Income from house property' but classified the service charges as 'Income from other sources,' disallowing the deduction under Section 24(a) of Rs. 79,41,816/-. The CIT(A), following the Tribunal's order for AY 2007-08, allowed the assessee's claim, noting that no actual services were provided, and the service charges were essentially rent. The Tribunal upheld the CIT(A)'s order, finding no reason to interfere as the facts and circumstances remained unchanged from earlier years.2. Classification of Service Charges as Income from Other Sources Instead of Rental Income:The AO had categorized the service charges received from Mitsui & Co. India Pvt. Ltd. as 'Income from other sources' instead of rental income, leading to the disallowance of the deduction under Section 24(a). The CIT(A) disagreed, treating the service charges as rent based on the Tribunal's earlier decision, which stated that the form and substance of the transaction should determine the nature of the income. The Tribunal confirmed the CIT(A)'s decision, dismissing the revenue's appeal.3. Disallowance of Litigation Fees Paid to Law Firms:The AO disallowed Rs. 14,33,347/- paid to M/s Atul Sharma & Associates for litigation charges, considering it not incurred wholly and exclusively for business purposes. The CIT(A), referencing the Tribunal's order for AY 2007-08, allowed the claim, noting that the expenses were related to litigation against VLS Finance Ltd. and not personal litigation of directors. The Tribunal upheld the CIT(A)'s order, finding no evidence from the revenue to show that the expenses were inadmissible.4. Disallowance of Depreciation Based on Findings in the Block Assessment Order:The AO disallowed Rs. 99,31,096/- of claimed depreciation, referencing the block assessment order which considered certain assets as unexplained. The CIT(A) allowed the claim, citing the Tribunal's order which had previously deleted similar disallowances in the block assessment. The Tribunal upheld the CIT(A)'s decision, noting no new material was presented to justify the disallowance.Conclusion for AY 2009-10:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s orders on all issues, finding them consistent with earlier Tribunal decisions and unchanged facts and circumstances.AY 2010-11:The issues and facts for AY 2010-11 were identical to AY 2009-10. The CIT(A) followed earlier ITAT orders, and the Tribunal upheld the CIT(A)'s decisions for the same reasons, dismissing the revenue's appeal.Final Order:Both appeals preferred by the revenue for AY 2009-10 and AY 2010-11 were dismissed. The order was pronounced in open court on 29-05-2015.